Problem I: Transaction Analysis (UNITED NATURAL FOODS, INC.) At the end of 2020, United Natural Foods realized that its 2020 financial statements contained several errors. Consider each question independently, and ignore tax effects. 1. On June 17, 2020, United Natural Foods received an order from Target for $70 in wholesale product. United Natural Foods had paid $22 for this product previously. The product was delivered to Target on July 3, 2020. Target paid $20 on delivery and agreed to pay the rest before September 3, 2020. United Natural Foods assumes that customers such as Target have a 2% chance of not paying amounts owed. United Natural Foods correctly recorded its purchase of the goods sold, but made no entry for the order, delivery or payment by Target. If needed adjustments were made to correct the error, what would be the reported amounts (not just the effect) for: a) Total current assets as of August 1, 2020? b) 2020? Total stockholders' equity as of August 1, c) Net (loss) income attributable to United Natural Foods, Inc., for the year ended August 1, 2020? 2. On August 2, 2018 (i.e., the first day of fiscal 2019), United Natural Foods purchased a new distribution center at a cost of $100. United Natural Foods then spent $40 upgrading the distribution center to make it fit for use. The distribution center will be usable for 20 years, at which time it will have no salvage value. United Natural Foods accounts for this asset using the straight-line method. Although all necessary entries in 2019 were correctly made, NO entry at all was made in 2020. If needed adjustments were made to correct the error, what would be the reported amounts (not just the effect) for: a) Total Assets as of August 1, 2020? b) Net (loss) income attributable to United Natural Foods, Inc., for the year ended August 1, 2020? c) Net cash provided by operating activities for the year ended August 1, 2020? 3. Many of United Natural Foods' salaried employees are paid on a monthly basis, receiving their paycheck on the last day of the month. For August, 2020, such employees earned a total of $10 on August 1, for which they will not be paid until August 31. On August 1, 2020, the firm incorrectly recorded the entire $10 as an expense and as a reduction in cash, even though no payment had yet been made. If needed adjustments were made to correct the error, what would be the reported amounts (not just the effect) for: a) Total Assets as of August 1, 2020? b) Total current liabilities as of August 1, 2020? c) Net (loss) income attributable to United Natural Foods, Inc., for the year ended August 1, 2020? UNITED NATURAL FOODS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (modified) (In millions, except for per share data) Fiscal Year Ended August 1, 2020 August 3, 2019 July 28, 2018 (52 weeks) (53 weeks) (52 weeks) Net sales 26,514 $ 22,307 $ 10.226 Cost of sales 22,639 19,098 8,706 Gross profit 3.875 3,209 1.520 Operating expenses 3,541 2,969 1,275 Goodwill impairment charges 405 293 11 Restructuring, acquisition and integration related expenses 106 148 10 Loss (gain) on sale of assets 19 (1) Operating (loss) income (196) (200) 224 Other expense (income); Net periodic benefit income, excluding service cost (39) (35) Interest expense, net 192 180 16 Other, net (5) (1) (2) Total other expense, .net 148 144 14 (Loss) income from continuing operations before income taxes (344) (344) 210 (Benefit) provision for income taxes (90) (58) 47 Net (loss) income from continuing operations (254) (286) 163 (Loss) income from discontinued operations, net of tax (15) Net (loss) income including noncontrolling interests (269) (285) 163 Less net income attributable to noncontrolling interests (5) (1) Net (loss) income attributable to United Natural Foods, Inc. (274) $ (286). S 163 S See accompanying Notes to Consolidated Financial Statements. UNITED NATURAL FOODS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Excerpted and Modified) Fiscal Year Ended August 1, 2020 August 3, 2019 July 28, 2018 (In thousands) (52 weeks) (53 weeks) (52 weeks) CASH FLOWS FROM OPERATING ACTIVITIES: 457 285 109 (1) (2,259) (47) Net cash provided by operating activities CASH FLOWS FROM INVESTING ACTIVITIES: Net cash used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES: Net cash (used in) provided by financing activities NET INCREASE IN CASH AND CASH EQUIVALENTS Cash and cash equivalents, at beginning of period Cash and cash equivalents, at end of period (453) 1,996 (54) 22 3 44 47 S 22 8 14 22 $ 44 S See accompanying Notes to Consolidated Financial Statements. August 3, 2019 44 1,067 2,191 236 21 3.559 1.896 442 1,090 34 108 45 7.174 UNITED NATURAL FOODS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (modified) (In thousands, except for per share data) August 1, 2020 ASSETS Cash and cash equivalents 475 Accounts receivable, net 1.120 Inventories 2.281 Prepaid expenses and other current assets 252 Current assets of discontinued operations 5 Total current assets 3.705 Property and equipment, net 1.701 Operating lease assets 982 Goodwill 20 Intangible assets, net 970 Deferred income taxes 108 Other assets 97 Long-term assets of discontinued operations Total assets 7,5875 LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable 1.633 s Accrued expenses and other current liabilities 282 Accrued compensation and benefits 229 Current portion of operating lease liabilities 131 Current portion of long-term debt and finance lease liabilities 83 Current liabilities of discontinued operations 12 Total current liabilities 2,370 Long-term debt 2,427 Long-term operating lease liabilities 874 Long-term finance lease liabilities 143 Pension and other postretirement benefit obligations 292 Deferred income taxes Other long-term liabilities 337 Long-term liabilities of discontinued operations 2 Total liabilities 6,445 Commitments and contingencies Stockholders equity: Preferred stock, S0.01 par value.... Common stock, S0.01 par value, 1 Additional paid-in capital 569 Treasury stock at cost (24) Accumulated other comprehensive loss (238) Retained earnings 837 Total United Natural Foods, Inc. stockholders' equity 1.145 Noncontrolling interests (3) Total stockholders' equity 1.142 Total liabilities and stockholders' equity 7,587 S 1,532 261 188 112 16 2.109 2,819 108 237 1 395 1 5.670 541 (24) (109) 1,098 1.507 (3) 1.504 7.174 UNITED NATURAL FOODS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CRITICAL ACCOUNTING POLICIES AND ESTIMATES Inventories Prior to fiscal 2019, we determined inventory cost using the first-in, first-out ("FIFO) method. For a substantial portion of legacy Supervalu inventory, cost was determined using the LIFO method, with the rest primarily determined using FIFO. During the second quarter of fiscal 2019 we... changed our method of inventory costing for certain historical United Natural Foods, Inc. inventory from the FIFO accounting method to the LIFO accounting method. We concluded that the LIFO method of inventory costing is preferable because it allows for better matching of costs and revenues, as historical inflationary inventory acquisition prices are expected to continue in the future and the LIFO method uses the current acquisition cost to value cost of goods sold as inventory is sold. Additionally, LIFO allows for better comparability of the results of our operations with those of similar companies in our peer group. If the first-in, first-out method had been used, Inventories, net would have been higher by approximately 544 million and S24 million for fiscal 2020 and 2019, respectively. As of August 1, 2020. approximately $2 billion inventory was valued under the LIFO method and primarily included grocery, frozen food and general merchandise products, with the remaining inventory valued under the FIFO method and primarily included meat, dairy and deli products. NOTE 7GOODWILL AND INTANGIBLE ASSETS Fiscal 2020 Goodwill Impairment Reviews ... As a result of the change in reporting units and the sustained decline in market capitalization and enterprise value, the Company performed an interim quantitative impairment review of goodwill for the Wholesale reporting unit, ... [and] the Company recorded a goodwill impairment charge of S405 million in the first quarter of fiscal 2020. NOTE 8-ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES August 1, 2020 $ 75 August 3, 2019 52 165 143 (in millions) Operating expenses payable Unearned revenue Dividends payable Interest payable Other current liabilites Accrued expenses and other current liabilities 4 2 27 14 35 26 S 282 s 261