9th Edition

ISBN: 9781260216141

Author: SPICELAND

Publisher: MCG CUSTOM

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Chapter 16, Problem 16.9BYP

Judgment Case 16–9

Analyzing the effect of deferred tax liabilities on firm risk; Macy’s, Inc.

• LO16–8

Real World Financials

The following is a portion of the balance sheets of Macy’s, Inc. for the years ended January 30, 2016 and January 31, 2015:

Chapter 16, Problem 16.9BYP, Judgment Case 169 Analyzing the effect of deferred tax liabilities on firm risk; Macys, Inc. LO168

Macy’s debt to equity ratio for the year ended January 30, 2016, was 3.84, calculated as ($20,576 – 4,253) ÷ 4,253. Some analysts argue that long-term deferred tax liabilities should be excluded from liabilities when computing the debt to equity ratio.

Required:

1. What is the rationale for the argument that long-term deferred tax liabilities should be excluded from liabilities when computing the debt to equity ratio?

2. What would be the effect on Macy’s debt to equity ratio of excluding deferred tax liabilities from its calculation? What would be the percentage change?

3. What might be the rationale for not excluding long-term deferred tax liabilities from liabilities when computing the debt to equity ratio?

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Chapter 16, Problem 16.8BYP

Chapter 16, Problem 16.12BYP

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Chapter 16 Solutions

INTERMEDIATE ACCOUNTING(LL)-W/CONNECT

Ch. 16 - Prob. 16.1Q Ch. 16 - A deferred tax liability (or asset) is described...Ch. 16 - Prob. 16.3Q Ch. 16 - Prob. 16.4Q Ch. 16 - Temporary differences result in future taxable or...Ch. 16 - Identify three examples of differences with no...Ch. 16 - The income tax rate for Hudson Refinery has been...Ch. 16 - Suppose a tax reform bill is enacted that causes...Ch. 16 - A net operating loss occurs when tax-deductible...Ch. 16 - Prob. 16.10Q

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Solution Summary: The author explains the reason behind the exclusion of deferred tax liabilities from calculation of debt equity ratio.

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