• Case AP6-2: American Eagle Outfitters, Inc.
American Eagle Outfitters, Inc. AP6-2 Financial information for American Eagle is presented in Appendix A at the end of the book. Required: 1. In the summary of significant accounting policies, what is American Eagle's procedure in accounting for inventory? pA-12

AE evaluates merchandise inventory at the lower of average cost or market, utilizing retail method. Average cost includes merchandise design and sourcing costs and related expenses. AE records merchandise receipts at the time merchandise is delivered to the foreign shipping port by the manufacturer; at this point the title and risk of loss is transferred to the company.

2. For the most recent year, what is the amount of inventory in the balance sheet? What does this amount represent?

Merchandise inventory Jan 30, 2010 - $326,454. This amount represents a current asset which reports the cost of goods purchased to be resold, which have not yet been sold as of January 30, 2010.

3. American Eagle refers to its cost of goods sold using a different name. What is it?

Cost of sales, including certain buying, occupancy and warehousing expenses.

4. For the most recent year, what is the amount of cost of goods sold in the income statement? What does this amount represent?

Cost of goods sold – $1,832,471. This amount represents the cost of the merchandise that was sold to customers and includes the cost from its supplier plus any additional costs necessary to get the merchandise into inventory and ready for sale. AE specify buying, occupancy and warehousing expenses.

5. Calculate American Eagle's inventory turnover ratio and average days in inventory for the most recent year.

Average inventory = (294,928+326,454)/2= 310,691
Inventory turnover ratio = 1832,471/((294,928+326,454)/2) = 5,898
Average days in inventory = 365/