FRP #2NAME:_______________________________________________________TA:______________________________________________________________________Financial Reporting Project #2READ ALL THE INSTRUCTIONS_ FAILURE TO DO SO MAY COST YOU POINTS!!Use the instructions from the first FRP. For Abercrombie and American Eagle, you will need the 2014 and 2013 annual reports.For the 2013 annual report you will only use the 2012 year (since the 2014 report has the 14 and 13 numbers). Sometimes prior year numbers are corrected in current year reports, so use the correct reports.Use formulas where you can. This must be turned in using excel and typed. Print to 3 pages only.Please note that I have provided some answers to help you figure out the rest. 1. Compute the following ratios or % for the companies below ---------. Show the components of the numerator and denominator of your calculation and carry your answer out to 1/10th of a %, or 3 decimal points.(example: 2,300/3,400=.676 or 67.6%. This is just to show style and not actual formulas).Liquidity is an important factor for companies to monitor… think about why that is and do the following.Company/Year Company/Year Company/YearRatio Abercrombie 2014 Abercrombie 2013 Abercrombie 2012Current Ratio 1,164,972 =2.397 1,320,566 2.324 1,307,824 = 1.893(See page 729 of your 485,956 568,222 690,801 book)Company/Year Company/Year Company/YearRatio American Eagle 2014 American Eagle 2013 American Eagle 2012Current Ratio 890,513 =1.940 923,560 = 2.223 1,141,800 = 2.619459,093 415,478 435,902 Company/Year Company/Year Company/YearAbercrombie 2014 Abercrombie 2013 Abercrombie 2012Gross Margin % 2,313,570=0.62 2,575,435 0.63 2,816,709 0.62 3,744,030 4,116,897 4,510,805 Company/Year Company/Year Company/YearAmerican Eagle 2014 American Eagle 2013 American Eagle 2012Gross Margin % 1,113,999=0.34 1,390,322 = 0.40 1,144,594 = 0.37 3,305,802 3,475,802 3,120,065Use your book to get more info on these ratio's.2. Answer the following:2014 2013 2012Which company is more liquid in each year? Abercrombie Abercrombie American Eagle(use the current ratio) P. 765-67 tells what a good current ratio is3. A current ratio of less than one indicates which of the following (circle the best answer)?a) The company will have a hard time paying current debt.b) The company will have an easier time paying current debt.Page 1 of 6FRP #24-6: Perform horizontal (time period to time period) analysis for the report year 2014 on key lines of the income statement. Abercrombie American Eagle4. Find the percent change in sales (total):(3,744,030-4,116,897) -9.000%(3,305,802-3,475,802)= -4.890%4,116,897 3,475,802Abercrombie American Eagle5. Find the percent change in Gross Margin (total):(2,313,570-2,575,435) -10.000% (1,113,999-1,390,322) -25.000%Do not use GM %, find the change.2,575,435 1,113,999Abercrombie American Eagle6. Find the percent change in net income:(51,821-54,628) -5.000% (80,322-82,983) -3.000%54,628 82,983Based on 4-6 which company is doing better- give your reasons why:Review the Balance Sheet and Footnotes for both companies then answer the following set of questions: ONLY USE THE 2014 Annual Report for these next questions!!!7. Estimates- What does each company say about estimates and name at least one account each company has that would use estimates .AbercrombiePage # ___37___American EaglePage #_43,45_____8. Locate the cost of goods sold footnote, what is included in costs for each? Just list some of the items.AbercrombieAmerican Eagle9. What is the advertising/marketing expense for each company AND what type of advertising do the companies do?AbercrombiePage #___49___American EaglePage #_50_____(See last page for how to do this). Carry your analysis out to 1/10th of a percentage. Show your work and results. Use formulas where you can. Company estimates a markdown reserve for future planned permanent markdowns the Company revises its estimates and assumptions as new information becomes available. COGS include ready inventory for sale, including product costs, freight, Page: 49Page: 49Cost of sales consists of merchandise costs, including design, importing and inbound freight costs, The Company recognized $94.2 million during the 2014 Fiscal year The Company recognized $84.6 million during the 2014 Fiscal yearAmerican Eagle is doing better because their percent change in net income is higher than Abercrombie. Page 2 of 6FRP #210. What method(s) of depreciation does the company use for financial statement purposes? (Answer for both companies).AbercrombieAmerican Eagle11. Locate the inventory footnote. What method do they use to account for inventory costs? (note: retail is a form of LIFO)AbercrombieAmerican Eagle12. Using the cash flow statement, please tell me how much each company invested in Property, Plant and Equipment for the year 2014 (this is sometimes referred to as Capital Expenditures). Remember, numbers are truncated, so tell me the actualamount. Do not include equipment leased to others.Abercrombie 967,001,000American Eagle 694,856,000 13. For each company, locate the footnote disclosure for commitments/contingencies/leases/rent, and briefly explain what a contingency is (asset or liability) and summarize the footnote, with page number. AbercrombiePage #__48____American EaglePage #___50___14. Quarterly financial data helps readers determine the seasonality of the company’s operations. Locate the quarterly data in the annual reportand tell me if there any major seasonal fluctuations (which quarters have the highest sales). If not, please note that they are not seasonal. (Google seasonality for more info)AbercrombiePage #__72____American EaglePage #__68____Abercrombie American EagleBeginning Bal. in RE 2,556,270,000 1,569,851,000 +Plus Net Income 113,519,000 80,322,000Less Dividends 57,400,000 99,585,000+/- Other=Ending Balance in RE 2,727,189,000 1,749,758,000 Horizontal Analysis Info:Current year (2014) – Base year (2013)Base year (2013)A negative signs means it was a decrease.15. Complete the following reconciliation for the current annual report year 2014 (this is just for the Retained Earnings section, not for total stockholders equity). Show beginning bal and then list all other activity in R/E and then show the ending balance, key numbers have been given for you in American Eagle. List the description of each item involved- this should not be difficult:It is a technique for