Refer to the fiscal year 1990 financial statement of Abercrombie & Fitch Co. Note: the fiscal year
Question:
Refer to the fiscal year 1990 financial statement of Abercrombie & Fitch Co. Note: ‘’the fiscal year 1999’’
Refers to the year that began on February 1, 1998, and January 30, 1999.
Process:
A. Open T- accounts for each balance sheet and income statement line item (i.e., for the permanent accounts: 9 asset t-accounts 9 liability and owners Equity T-accounts; for the temporary accounts: 5 T- accounts). Enter the January 31, 1998, balance sheet amounts as the opening balance for fiscal 1999 and post the following fiscal 1999 transactions (figures in the thousands of dollars):
- Inventory costing $481,918 was purchased on account during the year.
- Store supplies costing $1000 were purchased on account during the year.
- Sales of $815,804 were made of there $15,804 were on account.
- The cost of merchandise sold was $465,00.
- The company collected cash of $3,398 from its customers for sales previously recorded as accounts receivable.
- Cash of $514,114 was used to pay supplies for goods, supplies an property and equipment previously purchased on account.
- The company collected $23,785 from the limited in satisfaction of amounts owed by the Limited to A&F .
- Cash of $50,000 was used to repay principals on long term debt.
- Property and equipment were acquired on account (accounts payable) for $39,987.
- The company paid $908 for shares of its own common stock. This is known as treasury stock. It is recorded at cost as a debt in the owner’s equity section of the balance sheet.
- The following represent a single composite journal entry for all remaining transactions during the year. Record the entry in the appropriate accounts:
- Dr. others current assets 400
- Dr. general Adin. And store operating expense 150,652
- Dr. Provision for income Taxes(Expense) 68,040
- Dr. deferred Income Taxes 6,978
- Dr. Other assets 631
- Cr. Cash 151,264
- Cr. Income taxes Payable 17,736
- Cr. Other long term liabilities 3,327
- Cr. Interest Income 3,144
- Cr. Accrued Expenses 25,054
- Cr. Common stock 6
- Cr. Paid-in Capital 26,170
- TOTAL
226,701 226,701
Explanation: to record all other activity for fiscal 1999
- Prepared an unadjusted trial balance as January 30, 1999 using the ending balances in the T-accounts obtained in part A.
- Prepare 1999 adjusting journal entries for the fallowing items and post them to the T-accounts prepared
- In part A.
- 12 a. Abercrombie & Fitch employees counted the company’s merchandise inventory on January 30,1999. The cost of inventory in stock on that day was $43,992.
- 12 b. Abercrombie & Fitch employees counted the company’s store supplies on January 30, 1999.
- The cost of store supplies on that day was $5,887 (store supplies used are included in store operating expenses).
12c. assume that all of the activity in the ‘’other current assets ‘’ account is related to the company’s insurance policies. The unadjusted amount in ‘’other current assets’’ (hint: $1,696) represent the beginning balance for prepaid insurance premiums plus all cash payments for insurance during the year. At January 30, 1999, the amount of insurance that had not expired was $691.
12 d. The company recorded $20,946 of depreciation—part of general, administrative, and store operating expenses – on the property and equipment.
12 e. Abercrombie and Fitch employee's last payday was January 211st At year-end there was 10 days wages that had not been recorded. This amounted to $3,685 including all related payroll taxes.
- Prepare an adjusted trial balance as of January 30, 1999, using the ending balances in the T-accounts obtained after recording the adjustments listed in part c .
- Prepare the fiscal 1999 income statement.
- Close the temporary T-accounts and provide the fiscal 1999 closing entry.
- Prepare the January 30, 1999 balance sheet.
Analysis
- Calculate the year-over-year percentage change in Net sales for fiscal 1999. Comment on this trend.
- Comment on the level of inventory in 1999 compared to 1998 and 1997. (inventory in 1997 was $34,943 and total assets were $105,761.) what conclusions do you draw from this trend?
- What additional information might an investor in Abercrombie & Fitch seek in order to evaluate the company’s future level of profitability?
ABERCROMBIE & FITCH CO.
CONSOLIDATED BALANCE SHEETS
(thousands)
January 30,1999 January 31,1998
ASSETS
CURRENT ASSETS:
Cash and Equivalents ? $42,667
Accounts Receivable ? 1,695
Inventories ? 33,927
Store Supplies ? 5,592
Receivable from the limited ? 23,785
Other current assets ? 1,296
-------------------------- ---------------------------------
TOTAL CURRENT ASSETS ? 108,962
PROPERTY AND EQUIPMENT, NET ? 70,517
DEFERRED INCOME TAXES ? 3,759
OTHER ASSETS ? -----------
---------------------- --------------------------------------
TOTAL ASSETS ======?======= $183,238
LIABILITIES AND SHAREHOLDERS EQUITY
CURRENT LIABILITIES:
Accounts payable ? $15,968
Accrued Expenses ? 35,143
Income Taxes Payable ? 15,851
--------------------------- -------------------------------------
TOTAL CURRENT LIABILITIES ? 66,962
LONG-TERM DEBT ? 50,000
Other LONG TERM LIABILITIES ? 7,501
SHAREHOLDERS’ EQUITY:
Common stock ? 511
Paid in capital ? 117,972
Retained Earnings (Deficit) ? (58,931)
---------------------- ----------------------------------------------
59,552
Less: Treasury Stock , at Average Cost ? (777)
------------------- --------------------------------------------
TOTAL SHAREHOLDERS ‘ EQUITY ? 58,775
TOTAL LIABILITIES AND SHAREHOLDERS ‘ EQUITY ? $183,238
The accompanying Notes are an integral part of these Consolidated Financial Statements.
ABERCROMBIE & FITCH CO.
CONSOLIDATED STATEMENTS OF INCOME
(Thousands except per share amounts)
1999 1998 1997
NET SALES $521,617 $335,372
Cost of goods Sold, Occupancy and buying Costs ? 320,537 211,606
GROSS INCOME 201,080 123,766
General, Administrative
And Store Operating Expenses ---------? -------- 116,955 77,773
OPERATING INCOME ? 84,125 45,993
Interest (Income) /expense, net --------? -------------- 3,583 4,919
INCOME BEFORE INCOME TAXES ------------? ----------- 80,542 41,074
Provision for Income Taxes -------------? ----------- 32,220 16,400
NET INCOME ? $48,322 $24,674
The accompanying notes are an integral part of these Consolidated Financial Statements.
