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In the third quarter of 2009, Sears Holding Corporation narrowed its losses from $146 million in the previous quarter to $127 million. Despite this, shares of Sears’ stock have almost doubled during 2009.

QUESTIONS:

  1. The article mentioned that because of inventory management, the company’s gross margin widened by 0.4 percentage points to 27.2%. What are some of the things that were done? Explain how each of these examples you cited would affect the financial statements?
  2. The article mentioned that Sears cut $101 million of selling, general and administrative expenses. Where does this appear in the financial statements?
  3. One of the things that Sears has done to increase sales is to bring layaway back to its K-Mart stores. Explain how revenue recognition works in a layaway situation, where a deposit is required to hold merchandise at the store until it is fully paid for. Include journal entries, where possible, in your explanation example.

SOURCE: Cheng, A. “Sears Loss Narrows As it Controls Inventory, Expenses,” Wall Street Journal – Market Watch (Retrievable online at http://www.marketwatch.com/story/sears-loss-narrows-on-cost-controls-2009-11-19)

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