Problem 2: (10 points) Refer to the balance sheet, note 1 (Property and Equipmen
ID: 2444469 • Letter: P
Question
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.
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 8
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
_________________________________________________________________________________________________________
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:
10 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
__________________________________________________________________________________________________
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.
Explanation / Answer
Answer: there are two methods to display net cash flows from operating activities: the direct method and the indirect method. Under the indirect method, the basic approach is to adjust net income to arrive at net cash flows from operating activities. This indirect method involves listing changes in working capital accounts (by comparing the opening and ending balances). The direct method lists all cash revenues and expenses directly. Changes in balance sheet accounts are not involved in this method. Both methods report the same net operating cash flow, the only difference is in presentation.
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