8-62 Depreciation, Income Taxes, and Cash Flow (Alternates are 8-61 and 8-63.) The 2011 annual report of Wal-Mart, a major retailing company, listed the following property and equipment ($ in millions): Property and equipment, at cost Less: Accumulated depreciation Property and equipment, net $148,584 43,486 $105,098 The cash balance was $7,395 million. Depreciation expense during the year was $7,641 million. The condensed income statement follows ($ in millions): Revenues Expenses Operating income $421,849 (396,307) $ 25,542 For purposes of this problem, assume that all revenues and expenses, excluding depreciation, are for cash. Thus, cash operating expenses in millions of dollars were ($396,307 $7,641) = $388,666. Table for Problem 8-62 ($ amounts in millions) 1. Zero Income Taxes 2. 40% Income Taxes Straight-Line Accelerated Straight-Line Accelerated Depreciation Depreciation Depreciation Depreciation Revenues (all cash) $ $ $ $ Cash operating expenses Cash provided by operations before income taxes Depreciation expense Pretax income Income tax expense Net income $ $ $ $ $ $ $ Supplementary analysis Cash provided by operations $ before income taxes Income tax payments Net cash provided by operations $ $ $ $ 1. Wal-Mart uses straight-line depreciation. If accelerated depreciation had been used, assume that depreciation would have been $9,641 million. Assume zero income taxes. Fill in the first two columns of blanks in the accompanying table ($ in millions). 2. Fill in the last two columns of blanks in the table above. Assume an income tax rate of 40%. Assume also that Wal-Mart uses the same depreciation method for reporting to shareholders and to income tax authorities. 3. Compare your answers to requirements 1 and 2. Does depreciation provide cash? Explain as precisely as possible