Homework SourseReal world financials the income tax disclosure note accompa
Real world financials: the income tax disclosure note accompanying the January 31 2016 financial statements of walmart is reproduced below:
Required:
Focusing on only the first part of Note 9, relating current, deferred, and total provision for income taxes, prepare a summary journal entry that records Walmart’s 2016 tax expense associated with income from continuing operations.
Compare the change in deferred taxes you recorded in your summary journal entry to the actual change in Walmart’s net deferred tax liability for fiscal 2016. Do they reconcile? What besides continuing operations might affect deferred taxes?
| # in millions | 2016 | 2015 | 2014 |
|---|---|---|---|
| current | |||
| US Federal | 5562 | 6165 | 6377 |
| US state and local | 622 | 810 | 719 |
| International | 1400 | 1529 | 1523 |
| Total Current | 7584 | 8504 | 8619 |
| Deferred | |||
| US Federal | (704) | (387) | (72) |
| US state and local | (106) | (55) | 37 |
| International | (216) | (77) | (479) |
| Total Deferred Tax Expense | (1026) | (519) | (514) |
| Total provisionn for income tax | 6558 | 7985 | 8105 |
| Significant comonents of the companys deferred tax account balances are as follows | |||
| # in millions | |||
| Deferred tax assets | |||
| Loss and tax credity carryforwards | 3313 | 3255 | |
| accrued liabilities | 3763 | 3395 | |
| share based compensation | 192 | 184 | |
| other | 1390 | 1119 | |
| Total Deferred tax assets | 8658 | 7953 | |
| valuation allowances | (1456) | (1504) | |
| Deferred tax assets net of valuation allowance | 7202 | 6449 | |
| Deferred tax liabilities | |||
| property and equipment | 5813 | 5972 | |
| inventories | 1790 | 1825 | |
| other | 1452 | 1618 | |
| total deferred tax liabilities | 9055 | 9415 | |
| net deferred tax liabilities | 1853 | 2966 | |
Solution
Tentative economic statements were ready straight from a trial steadiness. Nevertheless, a caution was issued about changes that could be needed to organize a truly proper and up-to-date set of economic statements. This occurs considering that of multi-interval items (earnings and fee gadgets that relate to multiple accounting interval) and accrued objects (earnings and expense gadgets that have been earned or incurred in a given period, however not yet entered into the accounting records). In different phrases, the continuing business activity brings about alterations in account balances that have not been captured with the aid of a journal entry. Time brings about change, and an adjusting procedure is required to motive the money owed to properly mirror these alterations. These adjustments most commonly arise on the finish of each accounting period, and are equivalent to quickly chopping off the drift through the industry pipeline to take a dimension of what\'s within the pipeline. This is steady with the earnings and expense attention rules.
There is comfortably no solution to catalog each expertise adjustment that a business may just must make. What is required is a company working out of a particular trades operations, together with a good manage on accounting measurement concepts. The next dialogue describes average changes. Attempt to improve a conceptual understanding of those examples. Central thinking knowledge will then allow extension of those basic concepts to most any obstacle. The certain examples relate to:
it is long-established to pay for goods and services upfront. Insurance is usually bought with the aid of prepaying for an annual or semi-annual coverage. Or, hire on a building may be paid forward of its meant use (e.G., most landlords require monthly employ to be paid on the establishing of each month). One more illustration of pay as you go expense pertains to supplies which can be purchased and saved upfront of truly wanting them. On the time of purchase, such prepaid quantities symbolize future financial advantages that are got in exchange for cash repayments. As such, the initial expenditure offers upward thrust to an asset. As time passes, the asset is diminished. Because of this changes are needed to slash the asset account and transfer the consumption of the asset cost to an appropriate rate account.
As a general representation of this system, anticipate that one prepays $300 on June 1 to acquire three months of lawn mowing service. As proven within the following illustration, this transaction at first gives rise to a $300 asset on the June 1 steadiness sheet. As each and every month passes, $one hundred is removed from the stability sheet account and transferred to fee (think: an asset is reduced and fee is improved, giving upward thrust to diminish earnings and equity).
Illustration of prepaid insurance
coverage policies are traditionally bought prematurely. Cash is paid up front to cover a future period of safeguard. Expect a three-yr protection was purchased on January 1, 20X1, for $9,000. By means of December 31, 20X1, $3,000 of coverage insurance plan would have expired (one in all three years, or 1/three of $9,000). The next entries could be needed to file the transaction on January 1 and the adjustment on December 31:
thus of the above entry and adjusting entry, the income statement for 20X1 would file insurance fee of $three,000, and the balance sheet on the end of 20X1 would record prepaid coverage of $6,000 ($9,000 debit much less $three,000 credit score). The remainder $6,000 amount would be transferred to expense over the following two years with the aid of getting ready similar adjusting entries on the finish of 20X2 and 20X3.
Illustration of prepaid rent
assume a two-month lease is entered and employ paid upfront on March 1, 20X1, for $three,000. By means of March 31, 20X1, half of of the condo period has lapsed, and economic statements are to be ready. The following entries could be needed to record the transaction on March 1, and modify hire fee and pay as you go appoint on March 31:
How normally are changes needed?
MyExceLab
within the illustration for coverage, the adjustment used to be applied at the finish of December, but the appoint adjustment occurred on the end of March. Whats the difference? What was no longer stated within the first illustration used to be an assumption that economic statements had been most effective being all set at the end of the yr, wherein case the adjustments had been simplest needed at the moment. In the 2d illustration, it used to be explicitly acknowledged that financial statements have been to be prepared at the end of March, and that necessitated an finish of March adjustment.
There is a moral to this: adjustments must be made whenever monetary statements are ready, and the purpose of the adjustments is to properly assign the correct quantity of cost to the time interval in question (leaving the remainder in a stability sheet account to carry over to the subsequent time interval(s)). Every situation will likely be somewhat precise, and cautious evaluation and considerate consideration ought to be used to check the proper quantity of adjustment.
