LO 2-3 INTEGRATIVE CASE 2.1 Walmart Exhibits 1.19-1.21 of Integrative Case 1.1 (Chapter 1) present the financial statements for Walmart for 2012-2015. In addition, the website for this text contains Walmart's December 31, 2015, 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, did income before taxes for financial reporting exceed or fall short of taxable income for the year ending January 31, 2016 (hereafter, fiscal 2015)? 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 2015? c. Walmart reports deferred revenue for sales of gift certificates and for Sam's Club mem- bership 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 to reflect net operat- ing losses of consolidated foreign subsidiaries. The valuation allowance decreased over the last year. What effect does this have on net income in the most recent year (fiscal 2015)? e. Walmart uses the straight-line depreciation method for financial reporting and acceler- ated 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 1.19 Wal-Mart Stores, Inc. Balance Sheets as of January 31 (amounts in millions; allow for rounding) (Integrative Case 1.1) 2014 2015 2016 Assets: Cash and cash equivalents Accounts and notes receivable-net $ 7,281 6,677 $ 9,135 $ 8,705 6,778 5,624 Inventories Prepaid expenses and other current assets Current assets of discontinued segments Current Assets Property, plant, and equipmentat cost Accumulated depreciation Goodwill Other assets Total Assets Liabilities and Equities: Accounts payable 44,858 1,909 45,141 2,224 44,469 1,441 460 $ 61,185 $ 63,278 $ 60,239 178,678 182,634 188,054 (60,771) (65,979) (71,538) 19,510 18,102 16,695 6,149 5,455 6,131 $204,751 $203,490 $199,581 $ 37,415 $ 38,410 $ 38,487 Current accrued expenses 18,793 19,152 19,607 Notes payable and short-term debt 7,670 1,592 2,708 Current maturities of long-term debt 4,412 5,078 3,296 Income taxes payable 966 1,021 521 Current liabilities of discontinued operations 89 Current Liabilities $ 69,345 $ 65,253 $ 64,619 Long-term debt obligations 44,559 Deferred tax liabilities-noncurrent 8,017 43,495 8,805 44,030 7,321 Redeemable noncontrolling interest 1,491 - Total Liabilities $123,412 $117,553 $115,970 Common stock + Additional paid-in capital 2,685 2,785 2,122 Retained earnings 76,566 Accum. other comprehensive income (loss) (2,996) Total Common Shareholders' Equity Noncontrolling interests Total Equity Total Liabilities and Equities $ 76,255 5,084 $ 81,339 $204,751 $ 81,394 4,543 $ 85,937 $203,490 90,021 (11,597) $ 80,546 3,065 $ 83,611 $199,581 85,777 (7,168) Exhibit 1.20 Wal-Mart Stores, Inc. Income Statements for the Fiscal Years Ended January 31 (amounts in millions; allow for rounding) (Integrative Case 1.1) $ 27,147 2014 2015 Revenues Cost of goods sold Gross Profit Selling, general, and administrative expenses Operating Profit Interest income Interest expense Income before Tax $476,294 358,069 $485,651 365,086 $118,225 $120,565 91,353 93,418 $ 26,872 Income tax expense Income (Loss) from discontinued operations 119 (2,335) $ 24,656 8,105 144 Net Income $ 16,695 Net income attributable to noncontrolling interests Net Income Attributable to Common Shareholders Other comprehensive income items Comprehensive Income (673) $ 16,022 (2,409) $ 13,613 113 (2,461) $ 24,799 7,985 285 $ 17,099 (736) $ 16,363 (4,172) $ 12,191 Source: Wal-Mart Stores, Inc. Forms 10-K for the three fiscal years ended January 31, 2014, 2015, and 2016. 2016 $ 482,130 360,984 $121,146 97,041 $ 24,105 81 (2,548) $ 21,638 6,558 $ 15,080 (386) $ 14,694 (4,429) $ 10,265 Exhibit 1.21 Wal-Mart Stores, Inc. Statements of Cash Flows for the Three Fiscal Years Ended January 31 (amounts in millions; allow for rounding) (Integrative Case 1.1) Net Income Add back depreciation and amortization expenses Deferred income taxes (Increase) Decrease in accounts receivable (Increase) Decrease in inventories Increase (Decrease) in accounts payable Increase (Decrease) in income taxes payable Increase (Decrease) in other current liabilities (Income) Loss from discontinued segments Other operating cash flows Net Cash Flow from Operating Activities 2014 2015 2016 $ 16,695 $ 17,099 $ 15,080 8,870 9,173 9,454 (279) (503) (672) (566) (569) (19) (1,667) (1,229) (703) 531 2,678 2,008 (1,224) 166 (472) 103 1,249 1,303 (144) (285) 938 785 1,410 $ 23,257 $ 28,564 $ 27,389 (Continued) Exhibit 1.21 (Continued) Proceeds from sales of property, plant, and equipment Property, plant, and equipment acquired Investments acquired Other investment transactions Net Cash Flow from Investing Activities Increase (Decrease) in short-term borrowing Increase (Decrease) in long-term borrowing Share repurchases-treasury stock Dividend payments Other financing activities Net Cash Flow from Financing Activities Effects of exchange rate changes on cash Net Change in Cash Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year 727 (13,115) 570 (12,174) 635 (11,477) (138) 479 167 $(12,526) $(11,125) $(10,675) 911 (6,288) 1,235 2,104 1,270 (4,393) (6,683) (1,015) (4,112) (6,139) (6,185) (6,294) (982) (2,853) (2,558) $(10,789) $(15,071) $(16,122) (442) (514) (1,022) $ (500) $ 1,854 $ (430) $ 7,781 $ 7,281 $ 9,135 $ 7,281 $ 9,135 $ 8,705 Source: Wal-Mart Stores, Inc. Forms 10-K for the three fiscal years ended January 31, 2014, 2015, and 2016