Question

Walmart Income Statement For the year ended January 31, 2018			Walmart Income Statement For the year ended January 31, 2017
Details	2018		Details	2017
	$			$
Total Revenue	$500,343,000		Total Revenue	$485,873,000
Cost of Revenue	$373,396,000		Cost of Revenue	$361,256,000
Gross Profit	$126,947,000		Gross Profit	$124,617,000
Sales, General and Admin.	$106,510,000		Sales, General and Admin.	$101,853,000
Operating Income	$20,437,000		Operating Income	$22,764,000
Add’l income/expense items	($2,984,000)		Add’l income/expense items	$100,000
Earnings Before Interest and Tax	$17,453,000		Earnings Before Interest and Tax	$22,864,000
Interest Expense	$2,330,000		Interest Expense	$2,367,000
Earnings Before Tax	$15,123,000		Earnings Before Tax	$20,497,000
Income Tax	$4,600,000		Income Tax	$6,204,000
Minority Interest	($661,000)		Minority Interest	($650,000)
Net Income-Cont. Operations	$9,862,000		Net Income-Cont. Operations	$13,643,000
Net Income-	$9,862,000		Net Income-	$13,643,000
Net Income-Applicable to Common Shareholders	$9,862,000		Net Income-Applicable to Common Shareholders	$13,643,000

Target Income Statement For the year ended February 23, 2018			Target Income Statement For the year ended January 28, 2017
Details	2018		Details	2017
	$			$
Total Revenue	$71,879,000		Total Revenue	$69,495,000
Cost of Revenue	$51,125,000		Cost of Revenue	$49,145,000
Gross Profit	$20,754,000		Gross Profit	$20,350,000
Sales, General and Admin.	$14,248,000		Sales, General and Admin.	$13,356,000
Other Operating Items	$2,194,000		Other Operating Items	$2,025,000
Operating Income	$4,312,000		Operating Income	$4,969,000
Add’l income/expense items	0		Add’l income/expense items	0
Earnings Before Interest and Tax	$4,312,000		Earnings Before Interest and Tax	$4,969,000
Interest Expense	$666,000		Interest Expense	$1,004,000
Earnings Before Tax	$3,646,000		Earnings Before Tax	$3,965,000
Income Tax	$718,000		Income Tax	$1,296,000
Minority Interest	0		Minority Interest	0
Net Income-Cont. Operations	$2,928,000		Net Income-Cont. Operations	$2,669,000
Net Income	$2,934,000		Net Income	$2,737,000
Net Income-Applicable to Common Shareholders	$2,934,000		Net Income-	$2,737,000

1. Tax disclosures and strategies: Examine the income tax expense and deferred tax assets and liabilities.

a)      Determine the amount of tax expense on the income statement and distinguish between current and deferred portions.

b)      Assess the company’s effective tax rate, is it consistent? If not, do the fluctuations seem reasonable?

c)      Do the deferred tax assets and liabilities seem appropriate given the company’s industry?

d)      Is there a valuation allowance? How big is it relative to total deferred tax assets? Has the valuation allowance changed markedly during the year? This might indicate income shifting.

Answer 1

a)Amount of tax expense on the income statement and distinguish between current and deferred portions.
(Fig. In Millions)	Walmart		Target
a.	31-Jan-17	31-Jan-18	Feb 23 2018	Feb 23 2017
Income tax expense on Income statement	4600	6204	718	1296
Current	4780	5459	910	1255
Deferred	-180	745	-192	41
b. Effective tax rate	30.40%	30.30%	19.70%	32.70%
It is consistent for Walmart , but For Target ETR has come down sharply--combined effect of new lower U.S.Corporate Income tax Rate(35% to 21%)effective Jan 2018 & lower Tax bracket.
c. Deferred Tax assets	5939	8853	833	1281
Deferred Tax Liabilities	-6048	-10127	-1513	-2106
d. Valuation allowance	-1843	-1494
Net DTLiab.	-1952	-2768	-680	-825
As for Walmart , the company has recorded a provisional adjustment to deferred income taxes as at Jan. 31, 2018 , with a view to reflect the reduction in the U.S. statutory tax rate from 35% to 21% as a result of the Tax Act.
As for Target , it has released all the valuation allowances (carried due to a capital loss carryforward prior to 2015) in 2016 .