Based off of this http://www.sec.gov/Archives/edgar/data/919012/0000950123110247

Question

Based off of this

http://www.sec.gov/Archives/edgar/data/919012/000095012311024788/l41576e10vk.htm#L41576300

please help

1. Where is accounts receivable reported? Explain why using net sales to calculate the receivables turnover ratio might not be a good indicator of a company’s ability to efficiently manage receivables for a retail company like American Eagle, which typically sells clothing for cash.

2. Does American Eagle report an allowance for uncollectible accounts in the balance sheet? If so, how much is reported for the most recent year?

3. When does the American Eagle recognize revenue? Is this consistent with the Revenue Recognition Principle?

4. How does American Eagle record the purchase of a gift card? Is this way consistent with what you learned in ACC 200?

5. In the summary of significant accounting policies, what is American Eagle’s procedure in accounting for inventory?

6. Calculate American Eagle’s inventory turnover ratio and average days in inventory for the most recent year. -

Explanation / Answer

Solution-

1

Accounts receivable is in under current assets.If a company has plenty of cash sales rather than credit sales,net sales may not be the reliable indicator of net credit sales thus not a good indicator of receivables turnover ratio.

2 NO,It does not report Does American Eagle report an allowance for uncollectible accounts in the balance sheet? If so, how much is reported for the most recent year

3

As per below para it's not foloowing revenue recognition policy.

ASU 2009-13 requires entities to allocate revenue in an arrangement using estimated selling prices of the delivered goods and services based on a selling price hierarchy. The amendments eliminate the residual method of revenue allocation and require revenue to be allocated among the various deliverables in a multi-element transaction using the relative selling price method.This guidance is effective for revenue arrangements entered into or materially modified in fiscal years beginning after June 15, 2010. The Company will adopt ASU 2009-13 in Fiscal 2011 and does not expect an impact to its Consolidated Financial Statements.

4

Revenue is not recorded 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. Additionally, the Company recognizes revenue on unredeemed gift cards based on an estimate of the amounts that will not be redeemed (“gift card breakage”), determined through historical redemption trends. Gift card breakage revenue is recognized in proportion to actual gift card redemptions as a component of net sales

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