Problem 1 (15 points) Refer to the balance sheet and note 11 (Commitments) of Wal Mart in Appendix Required Did Wal Mart report a liability for its operating lease on January 31, 2015 balance sheet By how much Did Wal Mart report a liability for its capital lease on January 31, 2015 balance sheet By how much Did Wal Mart report an asset for its operating lease on January 31, 2015 balance sheet By how much Did Wal Mart report an asset for its capital lease on January 31, 2015 balance sheet By how much Assuming an interest rate of 5 , compute the present value of the operating lease commitments on January 31, 2015 Show all calculations for credit Calculate the Liabilities to Assets ratio and Long term Debt Ratio for Wal Mart as of January 31, 2015, using the amounts originally reported in its balance sheet for the year Assuming that Wal Mart was required to capitalize its operating lease, calculate the companys 2015s Liabilities to Assets ratio and Long term Debt Ratio Comment on the results from part 6 and 7 Problem 2 (10 points) Refer to the balance sheet, note 1 (Property and Equipment), and note 9 (taxes) of Wal Mart in Appendix Required Compute the average total depreciable life of assets in use for Wal Mart at the end of Jan 31, 2015 Compute the average age to date of depreciable assets in use for Wal Mart at the end of Jan 31, 2015 Compute the remaining useful life of depreciable assets in use for Wal Mart at the end of Jan 31, 2015 Compute the amount the company would report for property, plant, and equipment (net) at the end of the year if it had used tax reporting depreciation instead of financial reporting depreciation Compute the amount of depreciation expense recognized for tax purposes for fiscal 2015 using the amount of the deferred taxes liability related to deprecation timing differences Problem 3 (10 points) Refer to the 2014 pension disclosures for PepsiCo, Inc and The Coca Cola Company Required Do the companies offer defined benefit plan, defined contribution pension plan, or both Who (employees or companies) bear the risk with each plan Defined benefit plan, defined contribution plan or both Who bears the risk PepsiCo, Inc The Coca Cola Company Were these companies defined benefit pension plans over funded or under funded in 2014 By how much Underfunded or overfunded By how much PepsiCo, Inc The Coca Cola Company Do these companies report asset or liability related to their pension plans in their balance sheet at the end of 2014 What are the amounts that are reported in their balance sheets Report on balance sheet as asset or liability By how much PepsiCo, Inc The Coca Cola Company List the two companies actuarial assumptions regarding (1) discount rate and (2) future rate of salary increases used to determine projected benefit obligations (PBO) in 2014 Actuarial assumptions on Discount rate Actuarial assumptions on Future salary scale PepsiCo, Inc The Coca Cola Company Discuss the effects of the above actuarial assumptions on discount rate and future salary scale that Coca Cola Company has made relative to PepsiCo on projected benefit obligations (PBO) in 2014 Impact on Projected Benefit Obligations (PBO) in 2014 Actuarial assumptions on discount rates Actuarial assumptions on future salary scales Refer to your discussion in (5) Overall, which company do you think has the most conservative set of assumptions in 2014 Why If Coca Cola Company had closed down on December 31, 2014, is the amount that the company would have been obliged to pay its employees on account of pensions greater than, equal to, or less than PBO Appendix Wal Mart Stores, Inc Consolidated Balance Sheets As of January 31, (Amounts in millions) 2015 2014 ASSETS Current assets Cash and cash equivalents $ 9,135 $ 7,281 Receivables, net 6,778 6,677 Inventories 45,141 44,858 Prepaid expenses and other 2,224 1,909 Current assets of discontinued operations 460 Total current assets 63,278 61,185 Property and equipment Property and equipment 177,395 173,089 Less accumulated depreciation (63,115 ) (57,725 ) Property and equipment, net 114,280 115,364 Property under capital leases Property under capital leases 5,239 5,589 Less accumulated amortization (2,864 ) (3,046 ) Property under capital leases, net 2,375 2,543 Goodwill 18,102 19,510 Other assets and deferred charges 5,671 6,149 Total assets $ 203,706 $ 204,751 LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST, AND EQUITY Current liabilities Short term borrowings $ 1,592 $ 7,670 Accounts payable 38,410 37,415 Accrued liabilities 19,152 18,793 Accrued income taxes 1,021 966 Long term debt due within one year 4,810 4,103 Obligations under capital leases due within one year 287 309 Current liabilities of discontinued operations 89 Total current liabilities 65,272 69,345 Long term debt 41,086 41,771 Long term obligations under capital leases 2,606 2,788 Deferred income taxes and other 8,805 8,017 Redeemable noncontrolling interest 1,491 Commitments and contingencies Equity Common stock 323 323 Capital in excess of par value 2,462 2,362 Retained earnings 85,777 76,566 Accumulated other comprehensive income (loss) (7,168 ) (2,996 ) Total Walmart shareholders' equity 81,394 76,255 Nonredeemable noncontrolling interest 4,543 5,084 Total equity 85,937 81,339 Total liabilities, redeemable noncontrolling interest, and equity $ 203,706 $ 204,751 See accompanying notes Note 1 Summary of Significant Accounting Policies Property and Equipment Property and equipment are stated at cost Gains or losses on disposition are recognized as earned or incurred Costs of major improvements are capitalized, while costs of normal repairs and maintenance are charged to expense as incurred The following table summarizes the Company's property and equipment balances and includes the estimated useful lives that are generally used to depreciate the assets on a straight line basis Fiscal Years Ended January 31, (Amounts in millions) Estimated Useful Lives 2015 2014 Land N A $ 26,261 $ 26,184 Buildings and improvements 3 40 years 97,496 95,488 Fixtures and equipment 2 30 years 45,044 42,971 Transportation equipment 3 15 years 2,807 2,785 Construction in progress N A 5,787 5,661 Property and equipment $ 177,395 $ 173,089 Accumulated depreciation (63,115 ) (57,725 ) Property and equipment, net $ 114,280 $ 115,364 Leasehold improvements are depreciated over the shorter of the estimated useful life of the asset or the remaining expected lease term Depreciation expense for property and equipment, including amortization of property under capital leases, for fiscal 2015, 2014 and 2013 was $9 1 billion, $8 8 billion and $8 4 billion, respectively Interest costs capitalized on construction projects were $59 million, $78 million and $74 million in fiscal 2015, 2014 and 2013, respectively Note 9 Taxes Income from Continuing Operations The components of income from continuing operations before income taxes are as follows Fiscal Years Ended January 31, (Amounts in millions) 2015 2014 2013 U S $ 18,610 $ 19,412 $ 19,352 Non U S 6,189 5,244 6,310 Total income from continuing operations before income taxes $ 24,799 $ 24,656 $ 25,662 A summary of the provision for income taxes is as follows Fiscal Years Ended January 31, (Amounts in millions) 2015 2014 2013 Current U S federal $ 6,165 $ 6,377 $ 5,611 U S state and local 810 719 622 International 1,529 1,523 1,743 Total current tax provision 8,504 8,619 7,976 Deferred U S federal (387 ) (72 ) 38 U S state and local (55 ) 37 (8 ) International (77 ) (479 ) (48 ) Total deferred tax expense (benefit) (519 ) (514 ) (18 ) Total provision for income taxes $ 7,985 $ 8,105 $ 7,958 Deferred Taxes The significant components of the Company's deferred tax account balances are as follows January 31, (Amounts in millions) 2015 2014 Deferred tax assets Loss and tax credit carryforwards $ 3,255 $ 3,566 Accrued liabilities 3,395 2,986 Share based compensation 184 126 Other 1,119 1,573 Total deferred tax assets 7,953 8,251 Valuation allowances (1,504 ) (1,801 ) Deferred tax assets, net of valuation allowance 6,449 6,450 Deferred tax liabilities Property and equipment 5,972 6,295 Inventories 1,825 1,641 Other 1,618 1,827 Total deferred tax liabilities 9,415 9,763 Net deferred tax liabilities $ 2,966 $ 3,313 The deferred taxes are classified as follows in the Company's Consolidated Balance Sheets January 31, (Amounts in millions) 2015 2014 Balance Sheet classification Assets Prepaid expenses and other $ 728 $ 822 Other assets and deferred charges 1,033 1,151 Asset subtotals 1,761 1,973 Liabilities Accrued liabilities 56 176 Deferred income taxes and other 4,671 5,110 Liability subtotals 4,727 5,286 Net deferred tax liabilities $ 2,966 $ 3,313 Note 11 Commitments The Company has long term leases for stores and equipment Rentals (including amounts applicable to taxes, insurance, maintenance, other operating expenses and contingent rentals) under operating leases and other short term rental arrangements were $2 8 billion in both fiscal 2015 and 2014 and $2 6 billion in fiscal 2013 Aggregate minimum annual rentals at January 31, 2015, under non cancelable leases are as follows (Amounts in millions) Fiscal Year Operating Leases Capital Leases 2016 $ 1,759 $ 504 2017 1,615 476 2018 1,482 444 2019 1,354 408 2020 1,236 370 Thereafter 10,464 3,252 Total minimum rentals $ 17,910 $ 5,454 Less estimated executory costs 49 Net minimum lease payments 5,405 Less imputed interest 2,512 Present value of minimum lease payments $ 2,893 Certain of the Company's leases provide for the payment of contingent rentals based on a percentage of sales Such contingent rentals were not material for fiscal 2015, 2014 and 2013 Substantially all of the Company's store leases have renewal options, some of which may trigger an escalation in rentals The Company has future lease commitments for land and buildings for approximately 282 future locations These lease commitments have lease terms ranging from 1 to 30 years and provide for certain minimum rentals If executed, payments under operating leases would increase by $58 million for fiscal 2016, based on current cost estimates In connection with certain long term debt issuances, the Company could be liable for early termination payments if certain unlikely events were to occur At January 31, 2015, the aggregate termination payment would have been $64 million The arrangement pursuant to which this payment could be made will expire in fiscal 2019

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Problem 1: (15 points) Refer to the balance sheet and note 11 (Commitments) of Wal-Mart in Appendix. Required: Did Wal-Mart report a liability for its

Problem 1: (15 points)

Refer to the balance sheet and note 11 (Commitments) of Wal-Mart in Appendix.

Required:

Did Wal-Mart report a liability for its operating lease on January 31, 2015 balance sheet? By how much?

Did Wal-Mart report a liability for its capital lease on January 31, 2015 balance sheet? By how much?

Did Wal-Mart report an asset for its operating lease on January 31, 2015 balance sheet? By how much?

Did Wal-Mart report an asset for its capital lease on January 31, 2015 balance sheet? By how much?

Assuming an interest rate of 5%, compute the present value of the operating lease commitments on January 31, 2015. Show all calculations for credit.

Calculate the Liabilities to Assets ratio and Long-term Debt Ratio for Wal-Mart as of January 31, 2015, using the amounts originally reported in its balance sheet for the year.

Assuming that Wal-Mart was required to capitalize its operating lease, calculate the companys 2015s Liabilities to Assets ratio and Long-term Debt Ratio.

Comment on the results from part 6 and 7.

Problem 2: (10 points)

Refer to the balance sheet, note 1 (Property and Equipment), and note 9 (taxes) of Wal-Mart in Appendix.

Required:

Compute the average total depreciable life of assets in use for Wal-Mart at the end of Jan 31, 2015.

Compute the average age to date of depreciable assets in use for Wal-Mart at the end of Jan 31, 2015.

Compute the remaining useful life of depreciable assets in use for Wal-Mart at the end of Jan 31, 2015.

Compute the amount the company would report for property, plant, and equipment (net) at the end of the year if it had used tax reporting depreciation instead of financial reporting depreciation.

Compute the amount of depreciation expense recognized for tax purposes for fiscal 2015 using the amount of the deferred taxes liability related to deprecation timing differences.

Problem 3: (10 points)

Refer to the 2014 pension disclosures for PepsiCo, Inc. and The Coca-Cola Company.

Required:

Do the companies offer defined benefit plan, defined contribution pension plan, or both? Who (employees or companies) bear the risk with each plan?

Defined benefit plan, defined contribution plan or both?

Who bears the risk?

PepsiCo, Inc.

The Coca-Cola Company

Were these companies defined benefit pension plans over-funded or under-funded in 2014? By how much?

Underfunded or overfunded?

By how much?

PepsiCo, Inc.

The Coca-Cola Company

Do these companies report asset or liability related to their pension plans in their balance sheet at the end of 2014? What are the amounts that are reported in their balance sheets?

Report on balance sheet as asset or liability?

By how much?

PepsiCo, Inc.

The Coca-Cola Company

List the two companies actuarial assumptions regarding (1) discount rate and (2) future rate of salary increases used to determine projected benefit obligations (PBO) in 2014.

	Actuarial assumptions on Discount rate	Actuarial assumptions on Future salary scale
PepsiCo, Inc.
The Coca-Cola Company

Discuss the effects of the above actuarial assumptions on discount rate and future salary scale that Coca-Cola Company has made relative to PepsiCo on projected benefit obligations (PBO) in 2014.

Impact on Projected Benefit Obligations (PBO) in 2014

Actuarial assumptions on discount rates

Actuarial assumptions on future salary scales

Refer to your discussion in (5). Overall, which company do you think has the most conservative set of assumptions in 2014? Why?

If Coca-Cola Company had closed down on December 31, 2014, is the amount that the company would have been obliged to pay its employees on account of pensions greater than, equal to, or less than PBO?

Appendix

Wal-Mart Stores, Inc.

Consolidated Balance Sheets



	As of January 31,
(Amounts in millions)	2015			2014
ASSETS
Current assets:
Cash and cash equivalents	$	9,135		$	7,281
Receivables, net	6,778			6,677
Inventories	45,141			44,858
Prepaid expenses and other	2,224			1,909
Current assets of discontinued operations				460
Total current assets	63,278			61,185
Property and equipment:
Property and equipment	177,395			173,089
Less accumulated depreciation	(63,115		)	(57,725		)
Property and equipment, net	114,280			115,364
Property under capital leases:
Property under capital leases	5,239			5,589
Less accumulated amortization	(2,864		)	(3,046		)
Property under capital leases, net	2,375			2,543

Goodwill	18,102			19,510
Other assets and deferred charges	5,671			6,149
Total assets	$	203,706		$	204,751

LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST, AND EQUITY
Current liabilities:
Short-term borrowings	$	1,592		$	7,670
Accounts payable	38,410			37,415
Accrued liabilities	19,152			18,793
Accrued income taxes	1,021			966
Long-term debt due within one year	4,810			4,103
Obligations under capital leases due within one year	287			309
Current liabilities of discontinued operations				89
Total current liabilities	65,272			69,345

Long-term debt	41,086			41,771
Long-term obligations under capital leases	2,606			2,788
Deferred income taxes and other	8,805			8,017

Redeemable noncontrolling interest				1,491

Commitments and contingencies

Equity:
Common stock	323			323
Capital in excess of par value	2,462			2,362
Retained earnings	85,777			76,566
Accumulated other comprehensive income (loss)	(7,168		)	(2,996		)
Total Walmart shareholders' equity	81,394			76,255
Nonredeemable noncontrolling interest	4,543			5,084
Total equity	85,937			81,339
Total liabilities, redeemable noncontrolling interest, and equity	$	203,706		$	204,751

See accompanying notes.

Note 1. Summary of Significant Accounting Policies

......

Property and Equipment

Property and equipment are stated at cost. Gains or losses on disposition are recognized as earned or incurred. Costs of major improvements are capitalized, while costs of normal repairs and maintenance are charged to expense as incurred. The following table summarizes the Company's property and equipment balances and includes the estimated useful lives that are generally used to depreciate the assets on a straight-line basis:

		Fiscal Years Ended January 31,
(Amounts in millions)	Estimated Useful Lives	2015			2014
Land	N/A	$	26,261		$	26,184
Buildings and improvements	3-40 years	97,496			95,488
Fixtures and equipment	2-30 years	45,044			42,971
Transportation equipment	3-15 years	2,807			2,785
Construction in progress	N/A	5,787			5,661
Property and equipment		$	177,395		$	173,089
Accumulated depreciation		(63,115		)	(57,725		)
Property and equipment, net		$	114,280		$	115,364

Leasehold improvements are depreciated over the shorter of the estimated useful life of the asset or the remaining expected lease term. Depreciation expense for property and equipment, including amortization of property under capital leases, for fiscal 2015, 2014 and 2013 was $9.1 billion, $8.8 billion and $8.4 billion, respectively. Interest costs capitalized on construction projects were $59 million, $78 million and $74 million in fiscal 2015, 2014 and 2013, respectively.

Note 9. Taxes

Income from Continuing Operations

The components of income from continuing operations before income taxes are as follows:


	Fiscal Years Ended January 31,
(Amounts in millions)	2015		2014		2013
U.S.	$	18,610	$	19,412	$	19,352
Non-U.S.	6,189		5,244		6,310
Total income from continuing operations before income taxes	$	24,799	$	24,656	$	25,662

A summary of the provision for income taxes is as follows:


	Fiscal Years Ended January 31,
(Amounts in millions)	2015			2014			2013
Current:
U.S. federal	$	6,165		$	6,377		$	5,611
U.S. state and local	810			719			622
International	1,529			1,523			1,743
Total current tax provision	8,504			8,619			7,976
Deferred:
U.S. federal	(387		)	(72		)	38
U.S. state and local	(55		)	37			(8		)
International	(77		)	(479		)	(48		)
Total deferred tax expense (benefit)	(519		)	(514		)	(18		)
Total provision for income taxes	$	7,985		$	8,105		$	7,958

Deferred Taxes

The significant components of the Company's deferred tax account balances are as follows:

	January 31,
(Amounts in millions)	2015			2014
Deferred tax assets:
Loss and tax credit carryforwards	$	3,255		$	3,566
Accrued liabilities	3,395			2,986
Share-based compensation	184			126
Other	1,119			1,573
Total deferred tax assets	7,953			8,251
Valuation allowances	(1,504		)	(1,801		)
Deferred tax assets, net of valuation allowance	6,449			6,450
Deferred tax liabilities:
Property and equipment	5,972			6,295
Inventories	1,825			1,641
Other	1,618			1,827
Total deferred tax liabilities	9,415			9,763
Net deferred tax liabilities	$	2,966		$	3,313

The deferred taxes are classified as follows in the Company's Consolidated Balance Sheets:


	January 31,
(Amounts in millions)	2015		2014
Balance Sheet classification:
Assets:
Prepaid expenses and other	$	728	$	822
Other assets and deferred charges	1,033		1,151
Asset subtotals	1,761		1,973
Liabilities:
Accrued liabilities	56		176
Deferred income taxes and other	4,671		5,110
Liability subtotals	4,727		5,286
Net deferred tax liabilities	$	2,966	$	3,313

Note 11. Commitments

The Company has long-term leases for stores and equipment. Rentals (including amounts applicable to taxes, insurance, maintenance, other operating expenses and contingent rentals) under operating leases and other short-term rental arrangements were $2.8 billion in both fiscal 2015 and 2014 and $2.6 billion in fiscal 2013.

Aggregate minimum annual rentals at January 31, 2015, under non-cancelable leases are as follows:

(Amounts in millions)
Fiscal Year	Operating Leases		Capital Leases
2016	$	1,759	$	504
2017	1,615		476
2018	1,482		444
2019	1,354		408
2020	1,236		370
Thereafter	10,464		3,252
Total minimum rentals	$	17,910	$	5,454
Less estimated executory costs			49
Net minimum lease payments			5,405
Less imputed interest			2,512
Present value of minimum lease payments			$	2,893

Certain of the Company's leases provide for the payment of contingent rentals based on a percentage of sales. Such contingent rentals were not material for fiscal 2015, 2014 and 2013. Substantially all of the Company's store leases have renewal options, some of which may trigger an escalation in rentals.

The Company has future lease commitments for land and buildings for approximately 282 future locations. These lease commitments have lease terms ranging from 1 to 30 years and provide for certain minimum rentals. If executed, payments under operating leases would increase by $58 million for fiscal 2016, based on current cost estimates.

In connection with certain long-term debt issuances, the Company could be liable for early termination payments if certain unlikely events were to occur. At January 31, 2015, the aggregate termination payment would have been $64 million. The arrangement pursuant to which this payment could be made will expire in fiscal 2019.