Edited excerpts from Alphabet Inc.'s (parent of Google) 2015 tax note follow:

Required:
1. Prepare the book journal entry for income tax expense for 2015 (combine U.S., foreign, and state income taxes). Clearly indicate both the account title and whether the account is being debited or credited.
2. Using information given in the tax rate reconciliation, estimate Alphabet's pre-tax book income for 2015.
3. What was Alphabet's 2015 effective tax rate?
4. Using information found in the tax note, determine whether depreciation and amortization expense was higher for book or tax purposes in 2015 and by how much.
5. Based on information in the tax note, are the tax rates in foreign countries in which
Alphabet operates greater than or less than the U.S. tax rate?
6. Explain why federal research credits appear in the tax rate reconciliation.

Transcribed Image Text:

Year Ended December 31 2013 2014 2015 Expected provision at federal statutory rate (35%) State taxes, net of federal benefit Change in valuation allowance Foreign rate diffe re ntial Federal research credit Basis difference in investment of Arris Other adjustments Provision for income taxes 5,567 S 6,041 S6,878 133 (65) (2,624) (407) 0 (188) S 3,639 3,303 2,482) (433) (2,109) 0 57 (49) Current: Federal $2,394 127 S 2,716 $ 3,235 State (397) Foreign Total 3,232 3,647 3,561 Deferred: Federal (421) 0 (43) Total (493) $2,739S 3.639 (258) Provision for income taxes As of December 31 Deferred tax assets 2014 2015 S 534 144 Stock-based compensation ex pense State taxes Investme nt loss Legal settlement accruals Accrued emplovee benefits Accruals and reserves not currently deductible Net operating losses Tax credits Basis difference in investment of Arris Prepaid cost sharing S 376 133 133 175 671 175 245 230 503 262 0 243 3.468 Total de ferred tax assets 7,870 (1,732) Valuation allowance (1,659) Total deferred tax assets net of valuation allowance Deferred tax liabilities: Depreciation and amortization Identified intangibles Mark-to-market investme nts Renewable energy investments Foreign earnings (852) (965) (273) (430) 0 (125) (2,645) (787) (93) (529) (3,468) (73) (6,076) Total deferred tax liabilities Net deferred tax liabilities