Equity Accounts: Equity Account comprises of items relating to the owner’s of the business. They include the common stock, retained earnings less dividends distributed. Liability: Liabilities represent the amount which the business owes to outsiders. Examples of liabilities include bank loans, notes payable, accounts payable, outstanding expenses payable. Assets: Assets are the resources available to the business from which it will derive future economic benefits. Examples of asset are Land, Building, Plant and Machinery, Cash, Accounts Receivable , Prepaid expenses, Inventory. To classify: The given accounts in desired categories.

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Chapter D, Problem 2QS

To determine

Equity Accounts: Equity Account comprises of items relating to the owner’s of the business. They include the common stock, retained earnings less dividends distributed.

Liability: Liabilities represent the amount which the business owes to outsiders. Examples of liabilities include bank loans, notes payable, accounts payable, outstanding expenses payable.

Assets: Assets are the resources available to the business from which it will derive future economic benefits. Examples of asset are Land, Building, Plant and Machinery, Cash, Accounts Receivable, Prepaid expenses, Inventory.

To classify:

The given accounts in desired categories.

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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 expenses, Gross margin, and Net income?

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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