Interpreting income tax disclosures. Exhibit 11.24 presents information from the income tax note for a discount retailer for its fiscal years ending January 31, 2008, 2007, and 2006.

a. Present the journal entry to recognize income tax expense and income taxes payable for the year ended January 31, 2006. Use a single deferred tax account instead of separate accounts for deferred tax assets and deferred tax liabilities.

b. Repeat part a for the year ended January 31, 2007.

c. Repeat part a for the year ended January 31, 2008.

d. Why do the amounts for deferred taxes in the entries in parts a, b, and c not equal the changes in deferred tax assets and deferred tax liabilities in Exhibit 11.24 for each year?

e. Why do state and local taxes appear as an addition in the reconciliation between the statutory tax rate and the effective tax rate?

f. What does the reporting of a deferred tax asset for health care benefits and a deferred tax liability for pensions suggest about the funding status of its health care and pension plans?

g. The deferred tax liability for property, plant, and equipment remained relatively steady between January 31, 2006, and January 31, 2007. What does this behavior of the deferred tax liability suggest about this firm's expenditures on property, plant, and equipment?

h. What is the interpretation of the absence of a deferred tax asset valuationallowance?

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Income Tax Disclosures EXHIBIT 11.24 (amounts in millions) (Problem 35) Fiscal Year Ended January 31: 2008 2007 2006 Income Before Income Taxes 54,500 $3,862 $3,032 Income Tax Expense: Current ... $1,911 $1,574 $1,052 Deferred.. (201) $1,710 (122) $1,452 94 Total Income Tax Expense. $1,146 Incame Taxes at the Statutory Tax Rate of 35% 35.0% 35.0% 35.0% State and Local Taxes (net of federal tax benefit) Other .. 3.3 4.0 3.3 .... (7) (.5) (1.0) Effective Tax Rate.. 38.0% 37.6% 37.8% January 31: 2007 2008 2006 2005 COMPONENTS OF DEFERRED TAXES Deferred Tax Assets: Stock-Based Compensation... $ 466 $ 399 $ 332 $297 Self-Insured Benefits 238 217 179 143 Bad Debts..... 133 191 167 Health Care Benefits 39 39 38 42 Other.... 97 192 152 175 $ 974 S 871 Total Deferred Tax Assets $ 712 $1,126 Deferred Tax Liabilities: Property, Plant, and Equipment.. $ 806 $1,041 $1,080 $1,136 Pensions. 287 268 100 218 Other 135 114 96 84 Total Deferred Tax Liabilities $1,108 $1,276 $1,500 $1,481