Analysis Case 16–8
1. As an example, Kroger’s January 30, 2016 income statement reports the
income tax expense for the year as $1,045 million. The current portion is $723
Income tax expense 1,045
2. Kroger has a $221 million current deferred tax liability and a $1,752 million
non-current deferred tax liability, totaling $1,973 million for 2015. The
Judgment Case 16–9
Requirement 1
Increasing debt increases risk. Financial risk often is measured by the debt to
equity ratio: total liabilities/shareholders’ equity. The higher the debt to equity
Requirement 2
If we follow the argument above, we would reduce the numerator by the
Income tax expense (reduces income and therefore equity [retained earnings]) 1,477
Deferred tax liability (increases liabilities)
1,477
So, the revised ratio would be:
Requirement 3
The counterargument to excluding deferred tax liabilities from liabilities is that
there are other situations in which long-term borrowings tend to remain the same
Trueblood Case 16–10
A solution and extensive discussion materials accompany each case in the
Deloitte & Touche Trueblood Case Study Series. These are available to instructors
at: www.deloitte.com/us/truebloodcases.
Trueblood Case 16–11
A solution and extensive discussion materials accompany each case in the
Deloitte & Touche Trueblood Case Study Series. These are available to instructors
at: www.deloitte.com/us/truebloodcases.
Judgment Case 16–12
Requirement 1
($ in millions, except per share amounts)
RUSSELL-JAMES CORPORATION
Income Statement
For the year ended December 31, 2018
Revenues $300
Cost of goods sold 90
Gross profit $210
Per share of common stock (100 million shares):
Income from continuing operations $.90
Case 16–12 (concluded)
Requirement 2
Income taxes on income from continuing operations $60`
Target Case
1. Target’s January 30, 2016 income statement reports the income tax expense for
2. Target’s net deferred tax liability decreased from $1,130 to $790, which is a
change of $340. The journal entry in the answer to requirement 1 indicates a
3. Target is treating tax associated with its unrepatriated foreign earnings as a
permanent difference. We know this because Target has not recorded deferred
4. Target’s liability for unrecognized tax benefits is $153 million as of January 30,
That would increase net income in the period in which the liability for
unrecognized tax benefits was reduced.