The consolidated balance sheets of Gap Inc. included merchandise inventory in the amount of $1,506,000,000 as of January 31, 2009 (the end of fiscal year 2008) and $1,575,000,000 as of February 2, 2008 (the end of fiscal year 2007). Net sales were $14,526,000,000 and $15,763,000,000 at the end of fiscal years 2008 and 2007, respectively. Cost of goods sold and occupancy expenses were $9,079,000,000 and $10,071,000,000 at the end of fiscal years 2008 and 2007, respectively.

Required

1. Unlike most other merchandisers, Gap Inc. doesn’t include accounts receivable on its balance sheet. Why doesn’t Gap Inc.’s balance sheet include this account?

2. Identify and analyze the transaction to record sales during the year ended January 31, 2009.

3. Gap Inc. sets forth net sales but not gross sales on its income statement. What type(s) of deduction(s) would be made from gross sales to arrive at the amount of net sales reported? Why might the company decide not to report the amount(s) of the deduction(s) separately?

4. Reconstruct the Cost of Goods Sold section of Gap Inc.’s 2008 income statement.

5. Calculate the gross profit ratios for Gap Inc. for 2008 and 2007 and comment on any change noted. Is the company’s performance improving? Explain. What factors might have caused the change in the gross profit ratio?