Required:

1.DidWal-Martreport a liability for its operating lease on January 31, 2013 balance sheet? By how much?

 

 

 

 

 

2.DidWal-Martreport a liability for its capital lease on January 31, 2013 balance sheet? By how much?

 

 

 

 

 

3.DidWal-Martreport an asset for its operating lease on January 31, 2013 balance sheet? By how much?

 

 

 

 

 

4.DidWal-Martreport an asset for its capital lease on January 31, 2013 balance sheet? By how much?

 

 

 

 

 

 

5.Assuming an interest rate of 5%, compute the present value of the operating lease commitments on January 31, 2013. Show all calculations for credit.

 

6.Calculate the Liabilities to Assets ratio and Long-term Debt Ratio forWal-Martas ofJanuary 31, 2013, using the amountsoriginally reported in its balance sheet for the year.

 

 

 

 

 

 

 

 

 

 

7.Assuming thatWal-Martwas required to capitalize its operating lease, calculate the company’s2013’s Liabilities to Assets ratio and Long-term Debt Ratio.

 

 

 

 

 

 

 

 

 

8.Comment on the results from part 6 and 7.

 

 

 

 

 

 

 

 

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, 2013.

 

 

 

 

 

2.Compute the average age to date of depreciable assets in use for Wal-Mart at the end of Jan 31, 2013.

 

 

 

 

 

3.Compute the remaining useful life of depreciable assets in use for Wal-Mart at the end of Jan 31, 2013.

 

 

 

 

 

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 2013 using the amount of the deferred taxes liability related to deprecation timing differences.

 

 

 

 

Problem 3: (10 points)

Refer to the 2014 pension disclosures for PepsiCo, Inc. and The Coca-Cola Company.

Required:

(1)Do the companies offer defined benefit plan, defined contribution pension plan, or both? Who (employees or companies) bear the risk with each plan?

 

Â	Defined benefit plan, defined contribution plan or both?	Who bears the risk?
PepsiCo, Inc.	Â	Â
The Coca-Cola Company	Â	Â

 

(2)Were these companies’ defined benefit pension plans over-funded or under-funded in 2014? By how much?

Â	Underfunded or overfunded?	By how much?
PepsiCo, Inc.	Â	Â
The Coca-Cola Company	Â	Â

 

(3)Do these companies report asset or liability related to their pension plans in their balance sheet at the end of 2014? What are the amounts that are reported in their balance sheets?

Â	Report on balance sheet as asset or liability?	By how much?
PepsiCo, Inc.	Â	Â
The Coca-Cola Company	Â	Â

 

 

(4)List the two companies’ actuarial assumptions regarding (1) discount rate and (2) future rate of salary increases used to determine projected benefit obligations (PBO) in 2014.

Â	Actuarial assumptions on Discount rate	Actuarial assumptions on Future salary scale
PepsiCo, Inc.	Â	Â
The Coca-Cola Company	Â	Â

 

 

 

 

 

 

(5)Discuss the effects of the above actuarial assumptions on discount rate and future salary scale thatCoca-Cola Company has made relative toPepsiCo on projected benefit obligations (PBO) in 2014.

Â	Impact on Projected Benefit Obligations (PBO) in 2014
Actuarial assumptions on discount rates Â	Â
Actuarial assumptions onfuture salary scales Â	Â

 

(6)Refer to your discussion in (5). Overall, which company do you think has the most conservative set of assumptions in 2014? Why?

 

 

 

 

(7)If Coca-Cola Company had closed down on December 31, 2014, is the amount that the company would have been obliged to pay its employees on account of pensions greater than, equal to, or less than PBO?

 

(8)

Appendix

Wal-Mart Stores, Inc.

Consolidated Balance Sheets

Â
Â	Â	Â	Â	Â	Â	Â	Â	Â
Â	Â	As of January 31,
(Amounts in millions)	Â	2013			Â	2012
ASSETS	Â	Â			Â	Â
Current assets:	Â	Â			Â	Â
Cash and cash equivalents	Â	$	7,781	Â	Â	$	6,550	Â
Receivables, net	Â	6,768		Â	Â	5,937		Â
Inventories	Â	43,803		Â	Â	40,714		Â
Prepaid expenses and other	Â	1,588		Â	Â	1,774		Â
Total current assets	Â	59,940		Â	Â	54,975		Â
Property and equipment:	Â	Â			Â	Â
Property and equipment	Â	165,825		Â	Â	155,002		Â
Less accumulated depreciation	Â	(51,896		)	Â	(45,399		)
Property and equipment, net	Â	113,929		Â	Â	109,603		Â
Property under capital leases:	Â	Â			Â	Â
Property under capital leases	Â	5,899		Â	Â	5,936		Â
Less accumulated amortization	Â	(3,147		)	Â	(3,215		)
Property under capital leases, net	Â	2,752		Â	Â	2,721		Â
Â	Â	Â			Â	Â
Goodwill	Â	20,497		Â	Â	20,651		Â
Other assets and deferred charges	Â	5,987		Â	Â	5,456		Â
Total assets	Â	$	203,105	Â	Â	$	193,406	Â
Â	Â	Â			Â	Â
LIABILITIES AND EQUITY	Â	Â			Â	Â
Current liabilities:	Â	Â			Â	Â
Short-term borrowings	Â	$	6,805	Â	Â	$	4,047	Â
Accounts payable	Â	38,080		Â	Â	36,608		Â
Accrued liabilities	Â	18,808		Â	Â	18,180		Â
Accrued income taxes	Â	2,211		Â	Â	1,164		Â
Long-term debt due within one year	Â	5,587		Â	Â	1,975		Â
Obligations under capital leases due within one year	Â	327		Â	Â	326		Â
Total current liabilities	Â	71,818		Â	Â	62,300		Â
Â	Â	Â			Â	Â
Long-term debt	Â	38,394		Â	Â	44,070		Â
Long-term obligations under capital leases	Â	3,023		Â	Â	3,009		Â
Deferred income taxes and other	Â	7,613		Â	Â	7,862		Â
Redeemable noncontrolling interest	Â	519		Â	Â	404		Â
Â	Â	Â			Â	Â
Commitments and contingencies	Â	Â			Â	Â
Â	Â	Â			Â	Â
Equity:	Â	Â			Â	Â
Common stock	Â	332		Â	Â	342		Â
Capital in excess of par value	Â	3,620		Â	Â	3,692		Â
Retained earnings	Â	72,978		Â	Â	68,691		Â
Accumulated other comprehensive income (loss)	Â	(587		)	Â	(1,410		)
Total Walmart shareholders' equity	Â	76,343		Â	Â	71,315		Â
Nonredeemable noncontrolling interest	Â	5,395		Â	Â	4,446		Â
Total equity	Â	81,738		Â	Â	75,761		Â
Total liabilities and equity	Â	$	203,105	Â	Â	$	193,406	Â

See accompanying notes.

 

 

Note 1. Summary of Significant Accounting Policies

......

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:

Â
Â	Â	Â	Â	Â	Â	Â	Â	Â	Â	Â
Â	Â	Â	Â	Fiscal Years Ended January 31,
(Amounts in millions)	Â	Estimated Useful Lives	Â	2013			Â	2012
Land	Â	N/A	Â	$	25,612	Â	Â	$	23,499	Â
Buildings and improvements	Â	3-40 years	Â	90,686		Â	Â	84,275		Â
Fixtures and equipment	Â	3-25 years	Â	40,903		Â	Â	39,234		Â
Transportation equipment	Â	3-15 years	Â	2,796		Â	Â	2,682		Â
Construction in progress	Â	N/A	Â	5,828		Â	Â	5,312		Â
Property and equipment	Â	Â	Â	$	165,825	Â	Â	$	155,002	Â
Accumulated depreciation	Â	Â	Â	(51,896		)	Â	(45,399		)
Property and equipment, net	Â	Â	Â	$	113,929	Â	Â	$	109,603	Â

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,... for fiscal2013,2012 and2011 was$8.4 billion,$8.1 billion and$7.6 billion, respectively. Interest costs capitalized on construction projects were $74 million, $60 million and $63 million in fiscal2013,2012 and2011, respectively.

 

Note 9. Taxes

Effective Income Tax Rate Reconciliation

The Company's effective income tax rate is typically lower than the U.S. statutory tax rate primarily because of benefits from lower-taxed global operations, including the use of global funding structures and certain U.S. tax credits. The Company's non-U.S. income is generally subject to local country tax rates that are below the35% U.S. statutory tax rate. Certain non-U.S. earnings have been indefinitely reinvested outside the U.S. and are not subject to current U.S. income tax. A reconciliation of the significant differences between the U.S. statutory tax rate and the effective income tax rate on pretax income from continuing operations is as follows:

Â
Â	Â	Â	Â	Â	Â	Â	Â	Â	Â
Â	Â	Fiscal Years Ended January 31,
Â	Â	2013		Â	2012		Â	2011
U.S. statutory tax rate	Â	35.0	%	Â	35.0	%	Â	35.0	%
U.S. state income taxes, net of federal income tax benefit	Â	1.7	%	Â	2.0	%	Â	1.9	%
Income taxed outside the U.S.	Â	(2.6	)%	Â	(2.8	)%	Â	(2.2	)%
Net impact of repatriated international earnings	Â	(2.5	)%	Â	(0.3	)%	Â	(1.5	)%
Other, net	Â	(0.6	)%	Â	(1.3	)%	Â	(1.0	)%
Effective income tax rate	Â	31.0	%	Â	32.6	%	Â	32.2	%

 

Deferred Taxes

The significant components of the Company's deferred tax account balances are as follows:

Â
Â	Â	Â	Â	Â	Â	Â	Â	Â
Â	Â	January 31,
(Amounts in millions)	Â	2013			Â	2012
Deferred tax assets:	Â	Â			Â	Â
Loss and tax credit carryforwards	Â	$	3,525	Â	Â	$	2,996	Â
Accrued liabilities	Â	2,683		Â	Â	2,949		Â
Share-based compensation	Â	204		Â	Â	376		Â
Other	Â	1,500		Â	Â	1,029		Â
Total deferred tax assets	Â	7,912		Â	Â	7,350		Â
Valuation allowance	Â	(2,225		)	Â	(2,528		)
Deferred tax assets, net of valuation allowance	Â	5,687		Â	Â	4,822		Â
Deferred tax liabilities:	Â	Â			Â	Â
Property and equipment	Â	5,830		Â	Â	5,891		Â
Inventories	Â	1,912		Â	Â	1,627		Â
Other	Â	1,157		Â	Â	409		Â
Total deferred tax liabilities	Â	8,899		Â	Â	7,927		Â
Net deferred tax liabilities	Â	$	3,212	Â	Â	$	3,105	Â

 

Note 11. Commitments

The Company and certain of its subsidiaries have long-term leases for stores and equipment. Rentals (including amounts applicable to taxes, insurance, maintenance, other operating expenses and contingent rentals) under operating leases and other short-term rental arrangements were $2.6 billion, $2.4 billion and $2.0 billion in fiscal2013,2012 and2011, respectively.

Aggregate minimum annual rentals atJanuary 31,2013, under non-cancelable leases are as follows:

Â
Â	Â	Â	Â	Â	Â	Â	Â	Â
(Amounts in millions)	Â	Â			Â	Â
Fiscal Year	Â	Operating Leases			Â	Capital Leases
2014	Â	$	1,722	Â	Â	$	620	Â
2015	Â	1,598		Â	Â	584		Â
2016	Â	1,480		Â	Â	535		Â
2017	Â	1,384		Â	Â	490		Â
2018	Â	1,246		Â	Â	449		Â
Thereafter	Â	9,373		Â	Â	3,590		Â
Total minimum rentals	Â	$	16,803	Â	Â	$	6,268	Â
Less estimated executory costs	Â	Â			Â	55		Â
Net minimum lease payments	Â	Â			Â	6,213		Â
Less imputed interest	Â	Â			Â	2,863		Â
Present value of minimum lease payments	Â	Â			Â	$	3,350	Â

Certain of the Company's leases provide for the payment of contingent rentals based on a percentage of sales. Such contingent rentals were immaterial for fiscal2013,2012 and2011. Substantially all of the Company's store leases have renewal options, some of which may trigger an escalation in rentals.

The Company has future lease commitments for land and buildings for approximately366 future locations. These lease commitments have lease terms ranging from4 to50 years and provide for certain minimum rentals. If executed, payments under operating leases would increase by $82 million for fiscal2014, based on current cost estimates.