Comprehensive Problem, cont.
Requirement 8
Building 780,000
Critical Thinking
Tying It All Together 6-1
Dick’s Sporting Goods, Inc. is headquartered in Pennsylvania and is a leading sporting goods retailer. Dick’s
offers a variety of high-quality sports equipment, apparel, footwear and accessories. The company sells
inventory in their stores (Dick’s Sporting Goods, Golf Galaxy, Field & Stream, and True Runner) and online
through their Web site.
Requirements
1. On which financial statement would you find Merchandise Inventory? What was the amount of merchandise
inventory as of January 30, 2016 and January 31, 2015?
2. On which financial statement would you find Cost of Goods Sold? What does Cost of Goods Sold
represent?
3. How could you determine the amount of profit that Dick’s Sporting Goods earns when selling its
merchandise inventory? What is this amount for the year ending January 30, 2016?
SOLUTION
Requirement 1
Decision Case 6-1
Suppose you manage Campbell Appliance. The store’s summarized financial statements for 2019, the most
recent year, follow:
Assume that you need to double net income. To accomplish your goal, it will be very difficult to raise the sales
prices you charge because there is a discount appliance store nearby. Also, you have little control over your cost
of goods sold because the appliance manufacturers set the amount you must pay.
Identify several strategies for doubling net income.
SOLUTION
Financial Statement Case 6-1
The notes are an important part of a company’s financial statements, giving valuable details that would clutter
the tabular data presented in the statements. This case will help you learn to use a company’s inventory notes.
Requirements
1. Which inventory costing method does Target use? How does Target value its inventories? See Note 12.
2. By using the cost of goods sold formula, you can compute net purchases, which are not reported in the
Target financial statements. How much were Target’s inventory purchases during the year ended January 30,
2016?
3. Determine Target’s inventory turnover and days’ sales in inventory for the year ended January 30, 2016.
(Round each ratio to one decimal place.) How do Target’s inventory turnover and days’ sales in inventory
compare with Kohl’s Corporation’s for the year ended January 30, 2016? Explain.
SOLUTION
Team Project 6-1
Obtain the annual reports of as many companies as you have team members—one company per team member.
Most companies post their financial statements on their Web sites.
Requirements
1. Identify the inventory method used by each company.
2. Compute each company’s gross profit percentage, inventory turnover, and days’ sales in inventory for the
most recent two years.
3. For the industries of the companies you are analyzing, obtain the industry averages for gross profit
percentage and inventory turnover from Risk Management Association, Annual Statement Studies; Dun and
Bradstreet, Industry Norms and Key Business Ratios; or Leo Troy, Almanac of Business and Industrial
Financial Ratios.
4. How well does each of your companies compare with the average for its industry? What insight about your
companies can you glean from these ratios?
SOLUTION