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Using the attached financial statement footnote. Explain why the application of time value is appropriate to account for the transaction.

Using the attached financial statement footnote. Explain why the application of time value is appropriate to account for the transaction.

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Using the attached financial statement footnote. Explain why the application of time value is appropriate to account for the transaction. 

Note 9. Taxes The components of income (loss) before income taxes are as follows: Fiscal Years Ended January 31, (Amounts in millions) 2020 2019 2018 U.S. 17,098 S 15,875 S 10,722 Non-U.S. 3,018 (4,415) 4,401 Total income before income taxes 20,116 S 11,460 S 15,123 A summary of the provision for income taxes is as follows: Fiscal Years Ended January 31, (Amounts in millions) 2020 2019 2018 Current: U.S. federal 2,794 $ 2,763 $ 2,998 U.S. state and local 587 493 405 International 1,205 1,495 1,377 4,751 4,780 Total current tax provision Deferred: 4,586 U.S. federal 663 (361) (22) U.S. state and local 35 (16) (12) International (369) (93) (146) Total deferred tax expense (benefit) 329 (470) (180) Total provision for income taxes 4,915 4,281 S 4,600 In December 2017, the Tax Act was enacted and significantly changed U.S. income tax law. Beginning January 2018, the Tax Act reduced the U.S. statutory tax rate and created new taxes focused on foreign-sourced earnings and related-party payments, including the creation of the base erosion anti-abuse tax and a new tax on global intangible low-taxed income ("GILTI"). In addition, the Company was subject to a one-time transition tax in fiscal 2018 on accumulated foreign subsidiary earnings not previously subject to U.S. income tax. The SEC staff issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act ("SAB 118"), which allowed companies to record provisional amounts during a measurement period not to extend beyond one year of the enactment date. Due to the timing of the enactment and the complexity involved in applying the provisions of the Tax Act, the Company made reasonable estimates of the effects and recorded provisional amounts in its financial statements as of January 31, 2018, in accordance with SAB 118. The Company elected to apply the measurement period provisions of this guidance to certain income tax effects of the Tax Act when it became effective. The provisional measurement period ended in the fourth quarter of fiscal 2019. Management completed the Company's accounting for Tax Reform in fiscal 2019 based on prevailing regulations and currently available information, and any additional guidance issued by the IRS could impact the aforementioned amounts in future periods. The net tax benefit recognized in fiscal 2018 related to the Tax Act was $207 million, and in fiscal 2019, the Company recorded $442 million of additional tax expense related to the Tax Act, included as a component of provision for income taxes. One-time Transition Tax The Tax Act required the Company to pay U.S. income taxes on accumulated foreign subsidiary earnings not previously subject to U.S. income tax at a rate of 15.5% to the extent of foreign cash and certain other net current assets, as defined by the Tax Act, and 8.0% on the remaining earnings. In fiscal 2018, the Company recorded a provisional amount of $1.9 billion of additional income tax expense for its one-time transitional tax liability. The Company calculated the Transition Tax liability and increased the provisional amount by $413 million, with the increase included as a component of provision for income taxes in fiscal 2019. Deferred Tax Effects The Tax Act reduced the U.S. statutory tax rate from 35.0% to 21.0%, beginning January 2018. Accordingly, the Company re- measured its deferred taxes as of January 31, 2018, to reflect the reduced rate that will apply in future periods when these deferred taxes are settled or realized. In fiscal 2018, the Company recognized a deferred tax benefit of $2.1 billion to reflect the reduced U.S. tax rate and other effects of the Tax Act. In fiscal 2018, the Company made no provisional adjustment with respect to the GILTI provision of the Tax Act. Upon finalizing the provisional accounting for the remeasurement of U.S. deferred tax assets and liabilities in fiscal 2019, the Company recorded an additional tax benefit of $75 million, which is included as a component of provision for income taxes.
Transcribed Image Text:Note 9. Taxes The components of income (loss) before income taxes are as follows: Fiscal Years Ended January 31, (Amounts in millions) 2020 2019 2018 U.S. 17,098 S 15,875 S 10,722 Non-U.S. 3,018 (4,415) 4,401 Total income before income taxes 20,116 S 11,460 S 15,123 A summary of the provision for income taxes is as follows: Fiscal Years Ended January 31, (Amounts in millions) 2020 2019 2018 Current: U.S. federal 2,794 $ 2,763 $ 2,998 U.S. state and local 587 493 405 International 1,205 1,495 1,377 4,751 4,780 Total current tax provision Deferred: 4,586 U.S. federal 663 (361) (22) U.S. state and local 35 (16) (12) International (369) (93) (146) Total deferred tax expense (benefit) 329 (470) (180) Total provision for income taxes 4,915 4,281 S 4,600 In December 2017, the Tax Act was enacted and significantly changed U.S. income tax law. Beginning January 2018, the Tax Act reduced the U.S. statutory tax rate and created new taxes focused on foreign-sourced earnings and related-party payments, including the creation of the base erosion anti-abuse tax and a new tax on global intangible low-taxed income ("GILTI"). In addition, the Company was subject to a one-time transition tax in fiscal 2018 on accumulated foreign subsidiary earnings not previously subject to U.S. income tax. The SEC staff issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act ("SAB 118"), which allowed companies to record provisional amounts during a measurement period not to extend beyond one year of the enactment date. Due to the timing of the enactment and the complexity involved in applying the provisions of the Tax Act, the Company made reasonable estimates of the effects and recorded provisional amounts in its financial statements as of January 31, 2018, in accordance with SAB 118. The Company elected to apply the measurement period provisions of this guidance to certain income tax effects of the Tax Act when it became effective. The provisional measurement period ended in the fourth quarter of fiscal 2019. Management completed the Company's accounting for Tax Reform in fiscal 2019 based on prevailing regulations and currently available information, and any additional guidance issued by the IRS could impact the aforementioned amounts in future periods. The net tax benefit recognized in fiscal 2018 related to the Tax Act was $207 million, and in fiscal 2019, the Company recorded $442 million of additional tax expense related to the Tax Act, included as a component of provision for income taxes. One-time Transition Tax The Tax Act required the Company to pay U.S. income taxes on accumulated foreign subsidiary earnings not previously subject to U.S. income tax at a rate of 15.5% to the extent of foreign cash and certain other net current assets, as defined by the Tax Act, and 8.0% on the remaining earnings. In fiscal 2018, the Company recorded a provisional amount of $1.9 billion of additional income tax expense for its one-time transitional tax liability. The Company calculated the Transition Tax liability and increased the provisional amount by $413 million, with the increase included as a component of provision for income taxes in fiscal 2019. Deferred Tax Effects The Tax Act reduced the U.S. statutory tax rate from 35.0% to 21.0%, beginning January 2018. Accordingly, the Company re- measured its deferred taxes as of January 31, 2018, to reflect the reduced rate that will apply in future periods when these deferred taxes are settled or realized. In fiscal 2018, the Company recognized a deferred tax benefit of $2.1 billion to reflect the reduced U.S. tax rate and other effects of the Tax Act. In fiscal 2018, the Company made no provisional adjustment with respect to the GILTI provision of the Tax Act. Upon finalizing the provisional accounting for the remeasurement of U.S. deferred tax assets and liabilities in fiscal 2019, the Company recorded an additional tax benefit of $75 million, which is included as a component of provision for income taxes.
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