Problem 1: (15 points) Refer to the balance sheet and note 11 (Commitments) of Wal-Mart in Appendix. Required: 1. Did Wal-Mart report a liability for its operating lease on January 31, 2015 balance sheet? By how much? 2. Did Wal-Mart report a liability for its capital lease on January 31, 2015 balance sheet? By how much? 3. Did Wal-Mart report an asset for its operating lease on January 31, 2015 balance sheet? By how much? 4. Did Wal-Mart report an asset for its capital lease on January 31, 2015 balance sheet? By how much? 5. Assuming an interest rate of 5%, compute the present value of the operating lease commitments on January 31, 2015. Show all calculations for credit. 6. 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. 7. Assuming that Wal-Mart was required to capitalize its operating lease, calculate the companys 2015s Liabilities to Assets ratio and Long-term Debt Ratio. 8. 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: 1. Compute the average total depreciable life of assets in use for Wal-Mart at the end of Jan 31, 2015. 2. Compute the average age to date of depreciable assets in use for Wal-Mart at the end of Jan 31, 2015. 3. Compute the remaining useful life of depreciable assets in use for Wal-Mart at the end of Jan 31, 2015. 4. 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. 5. 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: (1) 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 (2) 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 (3) 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 (4) 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 (5) 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 (6) Refer to your discussion in (5). Overall, which company do you think has the most conservative set of assumptions in 2014? Why? (7) 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.