The Gap, Inc., is a global specialty retailer of casual wear and personal products for women, men,
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Note 1. Summary of Significant Accounting Policies:
Property and Equipment
Depreciation is computed using the straight-line method over the estimated useful lives of the related assets . . .
The cost of assets sold or retired and the related accumulated depreciation are removed from the accounts with any resulting gain or loss included in operating expenses in the Consolidated Statements of Earnings. Maintenance and repairs are expensed as incurred.
Interest related to assets under construction is capitalized during the construction period up to the amount of interest expense actually incurred.
Note 2. Additional Financial Statement Information
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and consist of the following:
Required:
1. Assuming that The Gap, Inc., did not have any asset impairment write-offs but did sell property, plant, and equipment in the most recent year with a cost of $501 million and an accumulated depreciation of $384 million, what was the amount of depreciation expense recorded in the current year?
2. Assume that The Gap, Inc., failed to record depreciation in the current year. Indicate the effect of the error (i.e., overstated or understated) on the following ratios:
(a) Earnings per share
(b) Fixed asset turnover
(c) Current ratio
(d) Return onassets
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