The financial statement of Wal-Mart Stores, Inc. revealed the following information regarding the firm’s income taxes:
Note 9. Taxes
Income from Continuing Operations
The components of income from continuing operations before income taxes are as follows:
a. Assuming that Wal-Mart had no significant permanent differences between book income and taxable income, did income before taxes for financial reporting exceed or fall short of taxable income for year ended 2012, 2013 and 2014? Explain.
b. Will the adjustment to net income for deferred taxes to compute cash flow from operations in the statement of cash flows result in an addition or a subtraction for2012, 2013 and 2014?
c. The company's accrued liabilities include accrued wages, self-insurance, accrued taxes, accrued utilities, and accrued interest etc. The company recognizes an expense and a liability for financial reporting for the accrued liabilities. However, they are expenses not yet deducted for tax purposes. Why are deferred taxes related to accrued liabilities disclosed as a deferred tax asset instead of a deferred tax liability?
d. For financial purposes, a company recognizes share-based compensation expenses during vesting period (from the grant date to the vesting date) based on the grant date fair value of the award. Under current tax law, the company receives a compensation expense deduction related to share-based compensation only when those options are exercised. Why are deferred taxes related to share-based compensation disclosed as a deferred tax asset?
e. Like most companies, Wal-Mart uses the straight-line depreciation method for financial reporting and accelerated depreciation methods for income tax purposes. Why are deferred taxes related to depreciation disclosed as a deferred tax liability?