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CP3-2

CP3-2. Group 7 Heather Broadwell Jimmy Ha Brittany Spangler William Quan Linda S. Yin. Question 1. What is the company’s revenue recognition policy?. AE’s Revenue Recognition Policy:. See page C-26 (appendix) for notes to AE’s financial statements Store Sales :

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CP3-2

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  1. CP3-2 Group 7Heather BroadwellJimmy HaBrittany SpanglerWilliam QuanLinda S. Yin

  2. Question 1 • What is the company’s revenue recognition policy?

  3. AE’s Revenue Recognition Policy: See page C-26 (appendix) for notes to AE’s financial statements • Store Sales: AE records revenue upon the purchase of merchandise by customers.

  4. AE’s Revenue Recognition Policy: See page C-26 (appendix) for notes to AE’s financial statements • Store Sales: AE records revenue upon the purchase of merchandise by customers. • E-Commerce: AE records revenue at the time the goods are shipped.

  5. AE’s Revenue Recognition Policy: See page C-26 (appendix) for notes to AE’s financial statements • Store Sales: AE records revenue upon the purchase of merchandise by customers. • E-Commerce: AE records revenue at the time the goods are shipped. • Gift Cards: AE does not record revenue on the purchase of gift cards. A current liability is recorded upon purchase and revenue is recognized when the gift card is redeemed for merchandise.

  6. AE’s Revenue Recognition Policy: See page C-26 (appendix) for notes to AE’s financial statements • Store Sales: AE records revenue upon the purchase of merchandise by customers. • E-Commerce: AE records revenue at the time the goods are shipped. • Gift Cards: AE does not record revenue on the purchase of gift cards. A current liability is recorded upon purchase and revenue is recognized when the gift card is redeemed for merchandise. • Sales to Off-Price Retailers: These sell-offs are typically sold below cost and the proceeds are reflected in the cost of sales.

  7. Question 2 • Assuming that $50MM of cost of sales was due to non-inventory purchase expenses (occupancy and warehousing costs), how much inventory did the company buy during the year?

  8. AE Inventory: See page C-12 & C-13 (appendix) for AE’s balance sheet & income statement (Figures in thousands) Inventory Bal. @ 1/31/04 $120,586 (b) ? (a) ? Bal. @ 1/29/05 $137,991

  9. AE Inventory: See page C-12 & C-13 (appendix) for AE’s balance sheet & income statement (Figures in thousands) Inventory Bal. @ 1/31/04 $120,586 (b) ?(a) $953,433 Bal. @ 1/29/05 $137,991 (a) Total Cost of Sales (for the year ended 1/29/05) $1,003,433 Less: Non-Inventory Purchase Expense - $50,000 Cost of Sales $953,433 Expense (+E, -SE) …….$953,433 Inventory (-A) ………………….$953,433 (a)

  10. AE Inventory: See page C-12 & C-13 (appendix) for AE’s balance sheet & income statement (Figures in thousands) Inventory Bal. @ 1/31/04 $120,586 (b) $970,838 (a) $953,433 Bal. @ 1/29/05 $137,991 (b) $120,586 + (b) - $953,433 = $137,991 (b) - $832,847 = $137,991 (b) = $970,838 AE purchased $970,838 in inventory.

  11. Question 3 • Calculate general, administrative and selling expenses as a percentage of sales for the years ended 1/29/05 and 1/31/04. By what percentage did it increase or decrease from fiscal 2003 to 2004?

  12. General, Admin. & Selling Expenses as a Percentage of Sales:(figures in thousands) See page C-13 (Appendix) for AE’s Income Statement • For the year-ended 1/29/05: 446,829 / 1,881,241 = 23.75%

  13. General, Admin. & Selling Expenses as a Percentage of Sales:(figures in thousands) See page C-13 (Appendix) for AE’s Income Statement • For the year-ended 1/29/05: 446,829 / 1,881,241 = 23.75% • For the year-ended 1/31/04: 356,261 / 1,435,436 = 24.82%

  14. General, Admin. & Selling Expenses as a Percentage of Sales:(figures in thousands) See page C-13 (Appendix) for AE’s Income Statement • For the year-ended 1/29/05: 446,829 / 1,881,241 = 23.75% • For the year-ended 1/31/04: 356,261 / 1,435,436 = 24.82% • % decrease from fiscal year 2003 to 2004: (23.75% - 24.82%) / 24.82% = -4.31%

  15. Question 4 • Compute the company’s total asset turnover for the year-ended 1/29/05 and explain it’s meaning.

  16. AE’s Total Asset Turnover(figures in thousands) See page C-12 & C-13 (appendix) for AE’s balance sheet and income statement Total Asset Turnover = Sales Revenue / Average Total Assets

  17. AE’s Total Asset Turnover(figures in thousands) See page C-12 & C-13 (appendix) for AE’s balance sheet and income statement Total Asset Turnover = Sales Revenue / Average Total Assets Sales Revenue (for the year-ended 1/29/05) = $1,881,241 Total Assets as of 1/31/04 = $932,414 Total Assets as of 1/29/05 = $1,293,659 Average Total Assets = $1,113,036.5

  18. AE’s Total Asset Turnover(figures in thousands) See page C-12 & C-13 (appendix) for AE’s balance sheet and income statement Total Asset Turnover = Sales Revenue / Average Total Assets Sales Revenue (for the year-ended 1/29/05) = $1,881,241 Total Assets as of 1/31/04 = $932,414 Total Assets as of 1/29/05 = $1,293,659 Average Total Assets = $1,113,036.5 AE’s Total Asset Turnover for the year-ended 1/29/05 = $1,881,241 / $1,113,036.5 = 1.69

  19. AE’s Total Asset Turnover(figures in thousands) See page C-12 & C-13 (appendix) for AE’s balance sheet and income statement Total Asset Turnover = Sales Revenue / Average Total Assets Sales Revenue (for the year-ended 1/29/05) = $1,881,241 Total Assets as of 1/31/04 = $932,414 Total Assets as of 1/29/05 = $1,293,659 Average Total Assets = $1,113,036.5 AE’s Total Asset Turnover for the year-ended 1/29/05 = $1,881,241 / $1,113,036.5 = 1.69 The total asset turnover ratio measures the sales generated per dollar of assets. The higher the ratio, the more efficient the company is at managing assets. For fiscal 2004, AE generated $1.69 in sales revenue for every dollar of assets.

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