"REQUIREDa.Assuming that Walmart had no significant permanent differences between book incomeand taxable income, did income before taxes for financial reporting exceed or fall shortof 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 fordeferred taxes to compute cash flow from operations in the statement of cash flowsresult in an addition or subtraction for fiscal 2015?c.Walmart reports deferred revenue for sales of gift certificates and for Sams Club mem-bership fees. These amounts are taxed when collected, but not recognized in financialreporting income until tendered at a store. Why does the tax effect of deferred revenueappear 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 overthe last year. What effect does this have on net income in the most recent year (fiscal2015)?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 taxliability is for property, plant, and equipment (depreciation). Explain how depreciationleads to a deferred tax liability. Suggest possible reasons why the amount of the deferredtax liability related to depreciation decreased over the last year." Info Needed: "Industry and Strategy Analysisa.Apply Porters five forces framework to the retail industry.b.How would you characterize the strategy of Walmart? How does Walmart create valuefor its customers? What critical risk and success factors must Walmart manage?Exhibit 1.19Wal-Mart Stores, Inc. Balance Sheets as of January 31(amounts in millions; allow for rounding)(Integrative Case 1.1)201420152016Assets:Cash and cash equivalents$ 7,281$ 9,135$ 8,705Accounts and notes receivablenet6,6776,7785,624Inventories44,85845,14144,469Prepaid expenses and other current assets1,9092,2241,441Current assets of discontinued segments460Current Assets$ 61,185$ 63,278$ 60,239Property, plant, and equipmentat cost178,678182,634188,054Accumulated depreciation(60,771)(65,979)(71,538)Goodwill19,51018,10216,695Other assets6,1495,4556,131Total Assets$204,751$203,490$199,581Liabilities and Equities:Accounts payable$ 37,415$ 38,410$ 38,487Current accrued expenses18,79319,15219,607Notes payable and short-term debt7,6701,5922,708Current maturities of long-term debt4,4125,0783,296Income taxes payable9661,021521Current liabilities of discontinued operations89Current Liabilities$ 69,345$ 65,253$ 64,619Long-term debt obligations44,55943,49544,030Deferred tax liabilitiesnoncurrent8,0178,8057,321Redeemable noncontrolling interest1,491Total Liabilities$123,412$117,553$115,970Common stockAdditional paid-in capital2,6852,7852,122Retained earnings76,56685,77790,021Accum. other comprehensive income (loss)(2,996)(7,168)(11,597)Total Common Shareholders Equity$ 76,255$ 81,394$ 80,546Noncontrolling interests5,0844,5433,065Total Equity$ 81,339$ 85,937$ 83,611Total Liabilities and Equities$204,751$203,490$199,581" "Exhibit 1.20Wal-Mart Stores, Inc.Income Statements for the Fiscal Years Ended January 31(amounts in millions; allow for rounding)(Integrative Case 1.1)201420152016Revenues$ 476,294$ 485,651$ 482,130Cost of goods sold358,069365,086360,984Gross Profit$118,225$120,565$121,146Selling, general, and administrative expenses91,35393,41897,041Operating Profit$ 26,872$ 27,147$ 24,105Interest income11911381Interest expense(2,335)(2,461)(2,548)Income before Tax$ 24,656$ 24,799$ 21,638Income tax expense8,1057,9856,558Income (Loss) from discontinued operations144285Net Income$ 16,695$ 17,099$ 15,080Net income attributable to noncontrolling interests(673)(736)(386)Net Income Attributable to Common Shareholders$ 16,022$ 16,363$ 14,694Other comprehensive income items(2,409)(4,172)(4,429)Comprehensive Income$ 13,613$ 12,191$ 10,265Source: Wal-Mart Stores, Inc. Forms 10-K for the three fiscal years ended January 31, 2014, 2015, and 2016.Exhibit 1.21Wal-Mart Stores, Inc. Statements of Cash Flows for theThree Fiscal Years Ended January 31(amounts in millions; allow for rounding)(Integrative Case 1.1)201420152016Net Income$ 16,695$ 17,099$ 15,080Add back depreciation and amortization expenses8,8709,1739,454Deferred income taxes(279)(503)(672)(Increase) Decrease in accounts receivable(566)(569)(19)(Increase) Decrease in inventories(1,667)(1,229)(703)Increase (Decrease) in accounts payable5312,6782,008Increase (Decrease) in income taxes payable(1,224)166(472)Increase (Decrease) in other current liabilities1031,2491,303(Income) Loss from discontinued segments(144)(285)Other operating cash flows9387851,410Net Cash Flow from Operating Activities$ 23,257$ 28,564$ 27,389(Continued)62Proceeds from sales of property, plant, and equipment727570635Property, plant, and equipment acquired(13,115)(12,174)(11,477)Investments acquiredOther investment transactions(138)479167Net Cash Flow from Investing Activities$(12,526)$(11,125)$(10,675)Increase (Decrease) in short-term borrowing911(6,288)1,235Increase (Decrease) in long-term borrowing2,1041,270(4,393)Share repurchasestreasury stock(6,683)(1,015)(4,112)Dividend payments(6,139)(6,185)(6,294)Other financing activities(982)(2,853)(2,558)Net Cash Flow from Financing Activities$(10,789)$(15,071)$(16,122)Effects of exchange rate changes on cash(442)(514)(1,022)Net Change in Cash$ (500)$ 1,854$ (430)Cash and cash equivalents, beginning of year$ 7,781$ 7,281$ 9,135Cash and cash equivalents, end of year$ 7,281$ 9,135$ 8,705"