Exhibits 1.19-1.22 of Integrative Case 1.1 (Chapter 1) present the financial statements for Walmart for 2018-2020. In addition, the website for this text contains Walmart's January 31, 2021, Form 10-K. Use this information, especially Note 9, "Taxes," to answer the following questions: REQUIRED a. Assuming that Walmart had no significant permanent differences between book income and taxable income, was income before taxes for financial reporting higher or lower than taxable income for the year ending January 31, 2021 (hereafter, "fiscal 2020," as 11/12 of months of this fiscal year fall in calendar 2020)? Explain. b. Assuming all current taxes are paid in cash, will the adjustment to net income for deferred taxes to compute cash flow from operations in the statement of cash flows result in an addition or subtraction for fiscal 2020? c. In Note 1 of the financial statements, Walmart describes deferred revenue for sales of gift certificates and for Sam's Club membership fees. These amounts are taxed when collected, but not recognized in financial reporting income until tendered at a store. Why does the tax effect of deferred revenue appear as a deferred tax asset? d. Walmart recognizes a valuation allowance on its deferred tax assets, primarily related to loss and tax credit carryforwards. The valuation allowance increased over the previous year. What effect does this have on net income in the most recent year (fiscal 2020)? e. Walmart uses the straight-line depreciation method for financial reporting and accelerated depreciation for income tax reporting. Like most firms, the largest deferred tax liability is for property. plant, and equipment (depreciation). Explain how depreciation leads to a deferred tax liability. Suggest possible reasons why the amount of the deferred tax liability related to depreciation decreased over the last year. Exhibit 1.18 Common-Size Financial Statement Data for Seven Firms in the Pharmaceutical Industry (Problem 1.13) Introduction Walmart is a very large chain of retail stores selling consumer goods. As it states in its Form 10-K for fiscal 2020: Walmart Inc. ("Walmart", the "Company"or"we") helps people around the world save money and live better - anytime and anywhere - by providing the opportunity to shop in retail stores and through eCommerce. Through innovation, we strive to continuously improve a customer-centric experience that seamlessly integrates our eCommerce and retail stores in an omnichannel offering that saves time for our customers. Each week, we serve over 265 million customers who visit approximately 11,500 stores and numerous eCommerce websites under 56 banners in 27 countries. Our strategy is to make every day easier for busy families, operate with discipline, sharpen our culture and become digital, and make trust a competitive advantage. Making life easier for busy families includes our commitment to price leadership, which has been and will remain a cornerstone of our business, as well as increasing convenience to save our customers time. By leading on price, we earn the trust of our customers every day by providing a broad assortment of quality merchandise and services at everyday low prices ("EDLP"). EDLP is our pricing philosophy under which we price items at a low price every day so our customers trust that our prices will not change under frequent promotional activity. Everyday low cost ("EDLC") is our commitment to control expenses so our cost savings can be passed along to our customers. Our operations comprise three reportable segments: Walmart U.S., Walmart International and Sam's Club. Our fiscal year ends on January 31 for our United States ("U.S.") and Canadian operations. We consolidate all other operations generally using a one-month lag and on a calendar year basis. For more detailed discussion of Walmart's stores, products, customers, and business model, visit the company's website: www.corporate.walmart.com. 15 Exhibit 1.20 (Continued) [CDmtrnued) Exhibits 1.19-1.22 of Integrative Case 1.1 (Chapter 1) present the financial statements for Walmart for 2018-2020. In addition, the website for this text contains Walmart's January 31, 2021, Form 10-K. Use this information, especially Note 9, "Taxes," to answer the following questions: REQUIRED a. Assuming that Walmart had no significant permanent differences between book income and taxable income, was income before taxes for financial reporting higher or lower than taxable income for the year ending January 31, 2021 (hereafter, "fiscal 2020," as 11/12 of months of this fiscal year fall in calendar 2020)? Explain. b. Assuming all current taxes are paid in cash, will the adjustment to net income for deferred taxes to compute cash flow from operations in the statement of cash flows result in an addition or subtraction for fiscal 2020? c. In Note 1 of the financial statements, Walmart describes deferred revenue for sales of gift certificates and for Sam's Club membership fees. These amounts are taxed when collected, but not recognized in financial reporting income until tendered at a store. Why does the tax effect of deferred revenue appear as a deferred tax asset? d. Walmart recognizes a valuation allowance on its deferred tax assets, primarily related to loss and tax credit carryforwards. The valuation allowance increased over the previous year. What effect does this have on net income in the most recent year (fiscal 2020)? e. Walmart uses the straight-line depreciation method for financial reporting and accelerated depreciation for income tax reporting. Like most firms, the largest deferred tax liability is for property. plant, and equipment (depreciation). Explain how depreciation leads to a deferred tax liability. Suggest possible reasons why the amount of the deferred tax liability related to depreciation decreased over the last year. Exhibit 1.18 Common-Size Financial Statement Data for Seven Firms in the Pharmaceutical Industry (Problem 1.13) Introduction Walmart is a very large chain of retail stores selling consumer goods. As it states in its Form 10-K for fiscal 2020: Walmart Inc. ("Walmart", the "Company"or"we") helps people around the world save money and live better - anytime and anywhere - by providing the opportunity to shop in retail stores and through eCommerce. Through innovation, we strive to continuously improve a customer-centric experience that seamlessly integrates our eCommerce and retail stores in an omnichannel offering that saves time for our customers. Each week, we serve over 265 million customers who visit approximately 11,500 stores and numerous eCommerce websites under 56 banners in 27 countries. Our strategy is to make every day easier for busy families, operate with discipline, sharpen our culture and become digital, and make trust a competitive advantage. Making life easier for busy families includes our commitment to price leadership, which has been and will remain a cornerstone of our business, as well as increasing convenience to save our customers time. By leading on price, we earn the trust of our customers every day by providing a broad assortment of quality merchandise and services at everyday low prices ("EDLP"). EDLP is our pricing philosophy under which we price items at a low price every day so our customers trust that our prices will not change under frequent promotional activity. Everyday low cost ("EDLC") is our commitment to control expenses so our cost savings can be passed along to our customers. Our operations comprise three reportable segments: Walmart U.S., Walmart International and Sam's Club. Our fiscal year ends on January 31 for our United States ("U.S.") and Canadian operations. We consolidate all other operations generally using a one-month lag and on a calendar year basis. For more detailed discussion of Walmart's stores, products, customers, and business model, visit the company's website: www.corporate.walmart.com. 15 Exhibit 1.20 (Continued) [CDmtrnued)