Real World Financials Kroger Co. is one of the largest retail food companies in the United States as measured by total annual sales. The Kroger Co. operates supermarkets, convenience stores, and manufactures and processes food that its supermarkets sell. Using B or the company's website check the company's annual report for the year ended February 1. 2020. Required: 1. From the income statement, determine the income tax expense for the fiscal year ended February 1, 2020. Tie that number to the first table in disclosure Note 5: "Taxes Based on Income," and prepare a summary journal entry that records Kroger's tax expense from continuing operations in the fiscal year ended February 1, 2020. 2. From Kroger's Note 5, calculate the total net deferred tax asset or liability as of February 1, 2020, and February 2, 2019. By how much did that amount change? To what extent did you account for that change in the journal entry you wrote for the first requirement of this case? Speculate as to the explanation of any difference. THE KROGER CO. CONSOLIDATED STATEMENTS OF OPERATIONS Years Ended January 30, 2021, February 1, 2020 and February 2, 2019 (In millions, except per share amounts) Sales Operating expenses Merchandise costs, including advertising, warehousing, and transportation, excluding items shown separately below Operating, general and administrative Rent Depreciation and amortization Operating profit 2020 (52 weeks) S 132,498 2019 (52 weeks) $122.286 2018 (52 weeks) S 121,852 101,597 24,500 95,294 95,103 21,208 20,786 874 884 884 2,747 2,6491 2,465 2.780 2.251 2.614 Other income (expense) Interest expense Gain on investments (544) (603) (620) Non-service component of company-sponsored pension plan costs Gain on sale of businesses Net earnings before income tax expense Income tax expense Net earnings including noncontrolling interests 29 (26) 1,105 157 228 176 1,782 3.370 1.981 3,978 782 469 900 2,588 1,512 3,078 Net income (loss) attributable to noncontrolling interests 3 (147) (32) Net earnings attributable to The Kroger Co. S 2,585 S 1.659 S 3,110 Net earnings attributable to The Kroger Co. per basic common share S 3.31 2.05 S 3.80 Average number of common shares used in basic calculation 773 799 810 Net earnings attributable to The Kroger Co. per diluted common share S 3.27 2.04 S 3.76 Average number of common shares used in diluted calculation 781 805 $18 The accompanying notes are an integral part of the consolidated financial statements. 5. TAXES BASED ON INCOME The provision for taxes based on income consists of Federal Current Deferred Subtotal federal State and local Current Deferred 2020 2019 2018 $ 577 $454 S 775 75 (50) (3) 652 404 772 133 70 108 (3) (5) 20 130 65 128 Subtotal state and local Total A reconciliation of the statutory federal rate and the effective rate follows: Statutory rate $ 782 $ 469 $ 900 2020 2019 2018 21.0 % 21.0 % 21.0 % State income taxes, net of federal tax benefit 3.0 2.6 2.6 Credits (0.7) (1.5) (1.3) Resolution of issues (0.1) 0.5 Excess tax benefits from share-based payments (0.8) (0.2) (0.3) Impairment losses attributable to noncontrolling interest Other changes, net 1.2 0.7 0.7 0.1 23.2 % 23.7% 22.6% The 2020 tax rate differed from the federal statutory rate primarily due to the effect of state income taxes, partially offset by the utilization of tax credits and deductions. The 2019 tax rate differed from the federal statutory rate primarily due to the effect of state income taxes and Lucky's Market losses attributable to the noncontrolling interest which reduced pre-tax income but did not impact tax expense.