Adjusting entries are required to adjust the accounts according to the accrual basis of accounting at the end of the every accounting period. For example: Recording the depreciation expense on depreciable assets at the end of each accounting year. The business activity for each type of adjusting entry is explained as follows: Accrued revenue: The adjusting entry for Accrued revenue is prepared to record the revenue earned during the period Accrued Expense: The adjusting entry for Accrued expense is prepared to record the expenses incurred during the period Deferred Revenue: The adjusting entry for Deferred revenue is prepared to defer the revenue that belong to next period Deferred expenses: The adjusting entry for Deferred expense is prepared to defer the expense that belong to next period Depreciation: The adjusting entry for depreciation expense is prepared to record the depreciation expense that belong to current period To choose: The item that represents a deferral

Question

Recently, Abercrombie & Fitch has been implementing a turnaround strategy since its sales had been falling for the past few years (11% decrease in 2014, 8% in 2015, and just 3% in 2016.) One part of Abercrombie's new strategy has been to abandon its logo-adorned merchandise, replacing it with a subtler look. Abercrombie wrote down $20.6 million of inventory, including logo-adorned merchandise, during the year ending January 30, 2016. Some of this inventory dated back to late 2013. The write-down was net of the amount it would be able to recover selling the inventory at a discount. The write-down is significant; Abercrombie's reported net income after this write-down was $35.6 million. Interestingly, Abercrombie excluded the inventory write-down from its non-GAAP income measures presented to investors; GAAP earnings were also included in the same report. Question: What impact would the write-down of inventory have had on Abercrombie's assets, Liabilities, and Equity?

Answer 1

Question

Chapter 3, Problem 3SEQ

To determine

Concept Introduction:

Adjusting entries are required to adjust the accounts according to the accrual basis of accounting at the end of the every accounting period. For example: Recording the depreciation expense on depreciable assets at the end of each accounting year.

The business activity for each type of adjusting entry is explained as follows:

Accrued revenue: The adjusting entry for Accrued revenue is prepared to record the revenue earned during the period
Accrued Expense: The adjusting entry for Accrued expense is prepared to record the expenses incurred during the period
Deferred Revenue: The adjusting entry for Deferred revenue is prepared to defer the revenue that belong to next period
Deferred expenses: The adjusting entry for Deferred expense is prepared to defer the expense that belong to next period
Depreciation: The adjusting entry for depreciation expense is prepared to record the depreciation expense that belong to current period

To choose:

The item that represents a deferral

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Recently, Abercrombie & Fitch has been implementing a turnaround strategy since its sales had been falling for the past few years (11% decrease in 2014, 8% in 2015, and just 3% in 2016.) One part of Abercrombie's new strategy has been to abandon its logo-adorned merchandise, replacing it with a subtler look. Abercrombie wrote down $20.6 million of inventory, including logo-adorned merchandise, during the year ending January 30, 2016. Some of this inventory dated back to late 2013. The write-down was net of the amount it would be able to recover selling the inventory at a discount. The write-down is significant; Abercrombie's reported net income after this write-down was $35.6 million. Interestingly, Abercrombie excluded the inventory write-down from its non-GAAP income measures presented to investors; GAAP earnings were also included in the same report. Question: What impact would the write-down of inventory have had on Abercrombie's assets, Liabilities, and Equity?

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