Question

The income tax disclosure note accompanying the January 31, 2017, financial statements of Walmart is reproduced below: 

 

Required: 

1. 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 2017 tax expense associated with income from continuing operations. 

2. Calculate the actual change in Walmart’s net deferred tax liability for fiscal 2017. Does that change reconcile with the change indicated in your summary journal entry? What besides continuing operations might affect deferred taxes?

Answer 1

The transactions of an organization are recorded in the books of accounts through journal entries. Journal entries are passed in the books of accounts on the basis of supporting vouchers corroborating the transactions. These journal entries are then posted to respective ledgers for preparing accounts.

 

1. Summary Journal entry:

In the said case, following journal entry is passed to record Walmart’s 2017 tax expense.

Journal entry to record 2017 Walmart’s tax expense
Particulars	Debit ($)	Credit ($)
Income tax expense	8227
Deferred tax asset	8853
Valuation allowance		1494
Deferred tax  liability		10127
Income tax liability		5459
(To record Walmart’s tax expense of 2017)

 

Explanation:

Here deferred tax asset is debited and deferred tax liability is credited to show the change in deferred assets and liabilities. Valuation allowance indicates the portion of deferred tax assets that is not ultimately realized. So, valuation allowance is credited in order adjust against deferred tax asset. Current income tax liability is credited as it indicates the current income tax payable. The balancing figure is income tax expense which is debited to charge against income.

 

2. Calculation of actual change in Walmart’s net deferred tax liability for fiscal 2017:

Change in DTL
Particulars	2017 ($)	2016 ($)
DTL	10127	9055
DTA	7359	7202
Net DTL	2768	1853
Increase in DTL	915

 

Explanation:

It is evident that Net DTL has increased to the tune of $915.

Such change does not affect the summary journal entry as the increase will cause DTL to increase and income tax expense to increase.

Such change does not affect the summary journal entry as the increase will cause DTL to increase and income tax expense to increase.