Bed Bath & Beyond Financial Analysis: UCLA-NUS August 2019 Quiz 2

This document presents a comprehensive solution to a finance quiz focused on the financial statements of Bed Bath & Beyond (BB&B) for fiscal year 2018. The assignment requires detailed analysis of the balance sheet, including accounts receivable, bad debt expense, prepaid expenses, and investments. It explores the impact of various transactions on financial ratios like the current and quick ratios, and assesses BB&B's liquidity. The quiz further delves into the income statement, examining gross margin, operating income, and effective tax rates. It analyzes the impact of goodwill impairments and restructuring charges. Finally, the assignment examines the cash flow statement, including depreciation, and the effects of a subsidiary sale. The solution provides detailed calculations, justifications, and explanations for each question, demonstrating a strong understanding of financial accounting principles and statement analysis.

UCLA-NUS Name: ________________
August 2019 Quiz 2
Please refer to the financial statements of Bed Bath & Beyond (referred to as, BB&B or “the
company”) for fiscal year 2018 which ended on March 2, 2019 in answering the following
questions. Note that there are notes on Property, Plant and Equipment and the Allowance for
Doubtful Accounts following the financial statements.
I. Focus on Balance Sheet Accounts (all dollars in millions except share data)
1. a. What is the amount of credit sales
outstanding as of March 2, 2019 that
management should pursue
collecting? (2 points)
b. What percentage of the total amount
owed by its customers as of March 2,
2019 does the company expect to be
able to collect? (3 points)
1.a. the amount of credit sales outstanding as of march 2, 2019 that
management should pursue collecting is 485.8.
b. the company expect to be able to collect 24.40% of the total
amount owed by its customers as of march 2, 2019.B.
2. In preparing the financial statements
for the third quarter of fiscal 2018,
management recorded a Bad Debt
Expense of $2.5.
How did the recording of the Bad
Debt Expense affect the items shown
on the right? (3 points)
2.
circle the correct response
(i) Accounts Receivable, net increased / decreased / no effect
(ii) Current Ratio increased / decreased / no effect
(iii) Total Liabilities / Total Assets increased / decreased / no effect
3. Refer to Schedule II on page 5 of the
financial statements.
a. Based on the information provided,
what was the total amount of the Bad
Debt Expense for fiscal 2018? (2
points)
b. What was the amount of the
Accounts Receivable written off in
fiscal 2018? (2 points)
c. How would the write off of an
account receivable during fiscal 2018
affect the items shown on the right?
(3 points)
3. a. the total amount of the bad debt expense for fiscal 2018 is $40.
b. the amount of the account receivable written off in fiscal 2018
is(378-40)=338
c. circle the correct response
(i) Amount of Accounts Receivable expected
to be collected as of March 2, 2019 would be:
higher / lower / the same
(ii) Income from Continuing Operations would be:
higher / lower / the same
(iii) Quick Ratio would be: higher / lower / the same
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4. Prepaid Expenses reported on the Balance
Sheet declined from $156.0 to $90.0
from the end of fiscal year 2017 to the
end of fiscal year 2018. A note reveals
that during fiscal year 2018, BB&B
prepaid for an insurance policy in the
amount of $34.0 and for leases in the
amount of $50.0. Assuming that there
was just one other transaction during the
year, what was it and what was the
associated dollar amount? (4 points)
4.. there are just one other transaction during the year,
(156+34+50)=240
Therefore, (240-90)=150
So, 150 was the associated dollar amount in prepaid expenses
reported on the balance sheet.
5. BB&B bought 1000 shares of Tesla stock
in early December for $360 a share. By
December 31, the share price had fallen
to $300.
a. In accounting for this, what accounts will
be affected on the Balance Sheet, Income
Statement and Cash Flow Statement and
by what amount? (Use + to indicate an
increase and – to indicate a decrease. For
example, if Cash goes up by 10, you
would write Cash +10.) (4 points)
5.
Income Statement
Balance Sheet
In tesla stock accounts will be affected on the balance sheet that is
(1000*360)=3,60,000
Cash Flow Statement
(1000+360-300)=1060.
6. BB&B failed to make an adjusting entry
to record interest owed of $5.5 on an
outstanding loan. By failing to record
this, how would the items on the right be
impacted? (3 points)
6.
circle the correct response
(i) Current Ratio increased / decreased / no effect
(ii) Prepaid Expenses increased / decreased / no effect
(iii) Cash Flow from Operating Activities
increased / decreased / no effect
(iv) Operating Income Expenses increased / decreased / no effect
7. a. Is BB&B liquid as of March 2, 2019?
Justify your answer using appropriate
ratios. (3 points)
b. Is there anything that would cause you to
have concerns about its liquidity?
Explain? (2 points)
7.a. liquid ratio= (cash+ account receivable)/current liabilities
=(509+485.8)/2077.6=0.47882. So the liquid ratio is not 1:1 in
BB&B liquid as of march 2, 2019. The company’s liquid condition
is in stable condition as it able to pay current liabilities using its
current assets.
b. No, as the liquid asset conditions is in favorable compare into
current liabilities so therefore no issues regarding the liquidity of
the company.
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8. a. During fiscal 2018, BB&B capitalized
$25.0 in the Deferred Charges account
related to a marketing campaign. By the end
of the fiscal year, the balance of this account
was $206.3 as shown on the Balance Sheet.
What would have been management’s
rationale for accounting for the $25.0 as a
Deferred Charge in fiscal 2018? (3 points)
b. Did BB&B’s Cash Flow from Operating
Activities increase as a result of the amount
capitalized (described in a above)? Explain.
(2 points)
c. What was the dollar amount of previously
recorded Deferred Charges that were
reported on the Income Statement in fiscal
2018? (2 points)
8. a. Management did accounting for $25 as deferred charge in the
fiscal year 2018 because the treatment would be done in the
balance sheet of the company and the same needs to be shown in
the notes to account section of the financial statements.
b. with the increase of cash flow operating activities as a result of
the amount not capitalized as a because the operating activities are
not relating to capitalization those are reflating in investing and
financial activities.
c. the amount of deferred charges in the fiscal 2018 was 206.3.
9. a. As of March 2, 2019, what was the
original cost of the items reported in
Property, Plant and Equipment (PPE) that
BB&B? (Refer to the note on Property and
Equipment on page 5 of the financial
statements.) (2 points)
b. Why is PPE shown on a “net” basis on
the Balance Sheet? (2 points)
9. the original cost of the items reported in property, plant and
equipment that BB&B 5340.1.
b. PPE is known to be a non-current tangible asset that is shown on
the balance sheet of this company for generating revenue as well as
profits. PPE is shown as “net” as it is known to be as net of
accumulated depreciation. This denotes that if this company does
not acquire new additional equipment in that case net PPE will
decrease in its value throughout each year all because of
depreciation.
10 a. A note to the financial statements
indicates that one of the items included in
Accrued Expenses within Current Liabilities
is “Health insurance, workers’
compensation and other insurance costs.”
Has the related amount passed through the
Income Statement? Explain. (2 points)
b. Has it passed through the Cash Flow
Statement? Explain. (2 points)
10. a. yes, it will related to income statement as it’s a part of
expenses that is to be incurred.
b. no, it will not be disclose in the cash flow statement as in cash
flow statement only the cash related transactions are disclosed.
11. Based on the information provided in
the financial statements, what amount of
dividends did BB&B declare for fiscal
2018? Show how you derived your answer.
(4 points)
11. a. according to the financial statement the amount of dividends
of BB&B declare for fiscal 2018 is 0.60 per share.
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b. “Payments of dividends” is reported on
the Cash Flow Statement under Cash Flow
from Financing Activities in the amount of
$86.3 for fiscal 2018. Why is this amount
the same or different than the amount that
you computed in (a) above? (2 points)
b. the above data is showing the per share dividend amount were as
the cash flow statement repressing the gross amount paid to the
shareholder as dividend.
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12. a. The ratio of Total Liabilities/Total
Equity was as follows at the two yearends:
fiscal 2018 fiscal 2017
1.57 1.43
Explain why the ratio increased. (2 points)
b. Does the increase in this ratio mean that
the company is riskier? Explain. (2 points)
12. a. The debt to equity ratio increased from financial year 2017 to
financial year 2018. This is because the company has been able to
service with its debt obligations using its cash flow and has also
been able to make use of its leverage in order to increase returns on
its equity.
b. This ratio is riskier because it is highly risky to lenders as well
as investors this is because company is able to finance its growth
with borrowing
II. Income Statement (all dollars in millions)
13. For fiscal 2018, BB&B’s gross margin
ratio was 34.1%, down from 36.0% a year
earlier. Name 3 things that could have caused
this increase. (3 points)
13. (1) A decrease in selling price without any corresponding
decrease in costs
(2) An increase in costs without any corresponding increase in
selling price
(3) Wrong valuation of closing stock re: valued at a lower figure
(2)
(3)
14. Operating Income significantly declined
in fiscal 2018 as compared with the prior
year. What were the two main reasons for
this? (4 points)
14. (1) due to increasing of costs of goods sold
(2) Due to increasing of fixed costs.
15. What was BB&B’s effective tax rate the
prior year, in fiscal 2017? (2 points)
15. effective tax rate is 35.70%
16. In fiscal 2018, “Goodwill and other
impairments, restructuring” was $509.9.
The note describing this charge says,
(i) goodwill impairments were $325,
(ii) tradename impairments were $150,
(iii) long-lived asset impairments were $20,
(iv) severance payments were $5 and
(v) the cancellation of leases was $9.9.
The only cash payment made in fiscal 2018
related to the severance payments was in the
amount of $2.
16.
Balance Sheet .
Goodwill - 325 severance -5
Trade name -150 cancellation -9.9
Long-lived -20
Cash payment -2
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Show how recording these items impacted
the accounts on the Balance Sheet, indicating
the account names and by what amount they
changed (using + and – for increase and
decrease). Be sure to show that the Balance
Sheet balances after this transaction is
recorded. (8 points)
Δ Total Assets =___-497____ Δ Total Liab. & Equity = -
14.9_______
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17. (all $ in millions) In fiscal 2019
(which is not shown in the financial
statements), BB&B’s management
decided to sell a small subsidiary that
makes surfboards called LA-Surf. The
pretax income for LA-Surf in fiscal 2019
was $20. LA-Surf was sold to Jetsurf
USA for $180 million. Assume a tax rate
of 25%.
How would the sale of LA-Surf be shown
on BB&B’s Income Statement for fiscal
2019? [Provide line item(s) and
amount(s).] (4 points)
b. How would this sale impact BB&B’s
operating income for the year? Explain.
(2 points)
17a. sale $180
Less: cost of goods sold:160
= total income= 20
Less: tax 25% =5
= net income =15
b. with the increase in sales the operating income for such years also
increase.
III. Cash Flow Statement (all dollars in millions)
18. In fiscal 2018, Cash flows from
operating activities shows Depreciation
and amortization of $338.8. The
previous year it was 313.1. If the
depreciation in fiscal year 2018 had
remained at the same amount as in fiscal
year 2017, how would the items shown
on the right be affected? (3 points)
18.
If depreciation in fiscal 2018 were the same amount as in fiscal year
2017:
circle the correct response
(i) Net income would be: higher / lower / the same
(ii) Cash flow from operating activities would be:
higher / lower / the same
(iii) Total assets would be: higher / lower / the same
19. Using the appropriate reported
numbers, show how the Cash Flow
Statement explains the change in the
Cash accounts on the Balance Sheet from
yearend fiscal 2017 to yearend fiscal
2018. (7 points)
19.
The cash flow shows decrease in cash on the balance sheet from
financial year 2017 to 2018. This is because cash has got reduced
all because of amount payment which is owed to the vendors or
even in past transactions. Payment in terms of liability has also
lead into decrease in cash. Decision of the company in order to
purchase an asset for incurring debt needs to pay cash. This is
done to reduce debt obligations. This is also another reason for
reduction in cash.
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IV. Overall Analysis and Suggestions
20. Considering all of the financial
information provided, what are 5 items
that you would suggest that BB&B’s
management concentrate on to improve
its performance in fiscal 2019? (10 points)
20. (1) It should meet its debt obligations and should make use of its
assets to meet debt obligations
(2) Company should generate more of sales and revenue in order to
grow such that it can earn profit in the coming years.
(3) the company has overall improved upon its net cash balance from
the past
(4) he company reported a loss in the income statement due to the
reporting of one time impairment charges of around 510 million
(5) the company sold one of its assets but still reported higher
depreciation expense showing a change In the depreciation reporting
method of the company.
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