Analyzing and Interpreting Tax Footnote (Financial Statement Effects Template) Under Armour, Inc. reports total tax expense of $154,112 thousands on its income statement for year ended December 31, 2015, and paid cash of $99,708 thousand for taxes. The tax footnote in the company's 10-K filing, reports the following deferred tax assets and liabilities information.

December 31 ($ thousands)	2015	2014
Deferred tax assets
Stock-based compensation	$40,406	$35,161
Allowance for doubtful accounts and other reserves	33,821	24,774
Accrued expenses	19,999	11,398
Foreign net operating loss carryforward	19,600	16,302
Deferred rent	13,991	11,005
Inventory obsolescence reserves	11,956	8,198
Tax basis inventory adjustment	10,019	5,845
U.S. net operating loss carryforward	9,217	4,733
Foreign tax credits	6,151	5,131
State tax credits, net of foreign impact	4,966	4,245
Deferred compensation	2,080	1,858
Other	6,346	4,592
Total deferred tax assets	178,552	133,242
Less: valuation allowance	(24,043)	(15,550)
Total net deferred tax assets	154,509	117,692
Deferred tax liability
Property, plant and equipment	(31,069)	(17,638)
Intangilble asset	(22,820)	(7,010)
Prepaid expenses	(8,766)	(6,424)
Other	(627)	(612)
Total deferred tax liabilities	(63,282)	(31,684)
Total deferred tax assets, net	$91,227	$86,008

(a) Did Under Armour's deferred tax assets increase or decrease during the most recent fiscal year. By what amount? Under Armour's deferred tax assets Answerdecreasedincreased

by $Answer

(thousands).

Which of the following best summarizes our interpretation of an increase in a company's deferred tax assets for the most recent year?

Deferred tax assets increased during the year, which means that the company paid more taxes than it reported as the tax expense on its income statement.

Deferred tax assets generally arise when tax deductions are less than tax expense reported in the income statement. Because deferred tax assets increased, we can concluded that tax deductions were greater than tax expense.

Deferred tax assets increased during the year, which means that the company's taxable income was less than in the prior year.

Deferred tax assets increased during the year, which means that the company reported more as tax expense on its income statement than it paid in taxes.

Mark 1.00 out of 1.00

(b) Did Under Armour's deferred tax liabilities increase or decrease during the most recent fiscal year? Under Amour's deferred tax liabilities Answerdecreasedincreased

by $Answer

(thousands).

Which of the following statements best describes the reason for the change in deferred tax liabilities during the most recent year?

The deferred tax liabilities decreased during the recent year because they paid down their tax liability.

The deferred tax liabilities increased during the recent year possibly because the company is depreciating its fixed assets more for tax purposes than it is for GAAP purposes.

The deferred tax liabilities increased during the recent year as a result of the reduction in its effective tax rate.

The deferred tax liabilities decreased during the recent year because the company's taxable income was less than in prior year.

Mark 1.00 out of 1.00

(c) The company recorded a valuation allowance during the year. This allowance relates to foreign net operating tax losses. Which of the following statements appears to be false regarding the foreign net operating tax losses and the valuation allowance.

The company's tax returns have reported losses in foreign jurisdictions. As of the end of 2015, there were insufficient profits and the tax losses could not be used in the current period.

As of December 31, 2015, the company believed some of the deferred tax assets associated with foreign tax loss carryforwards would expire unused. Therefore, a valuation allowance was recorded against the company's net deferred tax assets.

An increase to a valuation allowance will decrease current year income.

An increase to a valuation allowance will increase current year income.

Mark 1.00 out of 1.00

What proportion of the foreign net operating losses does the company believe will likely expire unused?

Round your answer to the nearest percent. Answer

%

(d) Explain how the valuation allowance affected 2015 net income.

Under Amour's valuation allowance account increased during the year, which means net income increased.

Under Amour's valuation allowance account decreased during the year, which means net income increased.

Under Amour's valuation allowance account increased during the year, which means net income decreased.

Under Amour's valuation allowance account decreased during the year, which means net income decreased.

Mark 1.00 out of 1.00

(e) Use the financial statement effects template to record Under Armour's income tax expense for the current fiscal year 2015 along with the changes in both deferred tax assets and liabilities. Assume that income taxes payable increased by $59,623 thousand.

Use negative signs with answers, when appropriate.

	Balance Sheet
Transaction	Cash Asset	+	Noncash Assets	=	Liabilities	+	Contributed Capital	+	Earned Capital
Record tax expense, part cash and part deferred

Income Statement
Revenue	-	Expenses	=	Net Income