QUESTIONS:

1. Identify the objectives of accounting for income taxes.

2. What is the rationale for the argument that long-term deferred tax liabilities should be excluded from liabilities when computing the debt-to-equity ratio?

3. What would be the effect on Macy's debt-to-equity ratio of excluding deferred tax liabilities from its calculation? What would be the percentage change?

4. What might be the rationale for not excluding long-term deferred tax liabilities from liabilities when computing the debt-to-equity ratio?

The following is a portion of the balance sheets of Macy's, Inc. for the years ended January 28, 2017 and January 30, 2016: Judgment Case 16-10 Analyzing the effect of deferred tax liabilities on firm risk; Macy's, Inc. LO16-8 January 28, 2017 January 30, 2016 $ $ Real World Financials 309 1,423 3,563 352 5,647 6,562 1.443 1,877 642 1,526 3,333 227 5,728 6,995 1.477 2,123 LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Short-term debt Merchandise accounts payable Accounts payable and accrued liabilities Income taxes Total Current Liabilities Long-Term debt Deferred Income Taxes Other Liabilities Shareholders' Equity Common stock (310.3 and 340.6 shares outstanding) Additional paid-in capital Accumulated equity Treasury stock Accumulated other comprehensive loss Total Macy's, Inc. Shareholders' Equity Noncontrolling interest Total Shareholders' Equity Total Liabilities and Shareholders' Equity 3 617 6,088 (1.489) (896) 4,323 (1) 4,322 $19,851 3 621 6,334 (1.665) (1,043) 4,250 3 4,253 $20,576 Required: 1. What is Macy's debt to equity ratio for the year ended January 28, 2017? 2. What would Macy's debt to equity ratio be if we excluded deferred tax liabilities from its calculation? 2,123 ders' Equity Common stock (310.3 and 340.6 shares outstanding) Additional paid-in capital Accumulated equity Treasury stock Accumuisted other comprehensive loss Total Macy's, Inc. Shareholders' Equity Noncontroling Interest Tote! Shareholders' caulty Tole Liabilities and Sharon 3 617 6,088 (1,489) (896) 4,323 (1) 4,322 $19,851 3 621 6,334 (1,665) (1,043) 4,250 3 4,253 $20,576 Required: 1. What is Macy's debt to equity ratio for the year ended January 28, 2017? 2. What would Macy's debt to equity ratio be if we excluded deferred tax liabilities from its calculation? What would be the percentage change? 3. What might be the rationale for not excluding long-term deferred tax liabilities from liabilities when computing the debt to equity ratio? ence. The following is a portion of the balance sheets of Macy's, Inc. for the years ended January 28, 2017 and January 30, 2016: Judgment Case 16-10 Analyzing the effect of deferred tax liabilities on firm risk: Macy's, Inc. LO 16-8 January 28, 2017 January 30, 2016 $ $ Real World Financials 309 1,423 3,563 352 5,647 6,562 1.443 1,877 642 1.526 3,333 227 5,728 6,995 1.477 2,123 LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Short-term debt Merchandise accounts payable Accounts payable and accrued liabilities Income taxes Total Current Liabilities Long-Term debt Deferred Income Taxes Other Liabilities Shareholders' Equity Common stock (310.3 and 340.6 shares outstanding) Additional pald-in capital Accumulated equity Treasury stock Accumulated other comprehensive loss Total Macy's, Inc. Shareholders' Equity Noncontrolling interest Total Shareholders' Equity Total Liabilities and Shareholders' Equity 3 617 6,088 (1,489) (896) 4,323 3 621 6,334 (1,665) (1,043) 4,250 3 4.253 $20,576 4,322 $19,851 Required: 1. What is Macy's debt to equity ratio for the year ended January 28, 2017? 2. What would Macy's debt to equity ratio be if we excluded deferred tax liabilities from its calculation? What would be the percentage change? 3. What might be the rationale for not excluding long-term deferred tax liabilities from liabilities when computing the debt to equity ratio