1. Selected recent balance sheet and income statement information for American E
ID: 2419808 • Letter: 1
Question
1. Selected recent balance sheet and income statement information for American Eagle Outfitters and The Gap, Inc. follows:
American Eagle Outfitters
The Gap, Inc.
(in thousands)
2014
(in millions)
2014
Year-end accounts payable
$ 203,872
Year-end accounts payable
$ 1,242
Average accounts payable
190,373
Average accounts payable
1,193
Sales
3,305,802
Sales
16,148
Cost of goods sold
2,191,803
Cost of goods sold
9,855
Which of the two companies listed above is leaning on the trade more?
a. American Eagle because its accounts payable turnover is greater and its accounts payable days outstanding is lower.
b. Gap because its accounts payable turnover is lower and its accounts payable days outstanding is higher.
c. Gap because its accounts payable turnover is higher and its accounts payable days outstanding is lower.
d. American Eagle because its accounts payable turnover is lower and its accounts payable days outstanding is higher.
e. Gap because its accounts payable turnover is lower and its accounts payable days outstanding is lower.
American Eagle Outfitters
The Gap, Inc.
(in thousands)
2014
(in millions)
2014
Year-end accounts payable
$ 203,872
Year-end accounts payable
$ 1,242
Average accounts payable
190,373
Average accounts payable
1,193
Sales
3,305,802
Sales
16,148
Cost of goods sold
2,191,803
Cost of goods sold
9,855
Explanation / Answer
American Eagle Outfitters The Gap, Inc. (in thousands) 2014 (in millions) 2014 Year-end accounts payable $ 203,872 Year-end accounts payable $ 1,242 Average accounts payable 190,373 Average accounts payable 1,193 Sales 3,305,802 Sales 16,148 Cost of goods sold 2,191,803 Cost of goods sold 9,855 Accounts Payable turnover = COGS/Average Accounts Payable 11.51 8.26 Average days Accounts Payable 31.70 44.19 So accounts payable Turnover is lower & Days accounts payable is more for the GAP Inc. So GAP Inc is leaning on trade. b. Gap because its accounts payable turnover is lower and its accounts payable days outstanding is higher.
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