Exhibits 1.26-1.28 of Integrative Case 1.1 present the financial statements for Walmart for 2012-2015. In addition, the

’Exhibits 1.26-1.28 of Integrative Case 1.1 present the financial statements for Walmart for 2012-2015. In addition, the website for this text contains Walmart's December 31, 2015, Form 10-K. You should read the management discussion and analysis (MD&A), financial statements, and notes to the financial statements, especially Note 2, ''Summary of Significant Accounting Policies.'

REQUIRED

REVENUE RECOGNITION

a. DoesWalmart recognize all of its revenue at a point in time? If not, how is it recognized?

COST OF SALES AND INVENTORY

b. What costing method does Walmart use to determine cost of sales and inventory?
c. How does Walmart handle the requirement to report inventory at lower-of-cost-ormarket?
d. Does Walmart have a large LIFO reserve? If not, why?
e. Walmart receives discounts from suppliers because it purchases large volumes of
merchandise. Is this reported as other income or accounted for in another way?

WORKING CAPITAL

f. Operations create working capital accounts. Which of Walmart’s working capital
accounts are the most financially significant?
g. Does Walmart’s working capital management yield a positive or negative net investment
in working capital? Is this a good situation for Walmart’s profitability? Why?

INCOME TAXES

h. Note 9 to Walmart’s consolidated financial statements presents a substantial amount
of income tax–related information, including an effective income tax rate reconciliation.
Which reconciling items appear to be relatively persistent?
i. What is the effect of Walmart’s generation of income in foreign jurisdictions on the
effective tax rate? Is the effect changing over time?
j. Are Walmart’s foreign earnings growing relative to U.S. earnings?
k. What is the interpretation of the line item ‘‘Net impact of repatriated international earnings’’?
Why is it a positive reconciling item in some years but negative in other years?
l. What are the two largest deferred tax assets? Explain how they have arisen and why
they are assets.
m. What is the ‘‘valuation allowance’’? It has decreased during the two-year period. What
is the implication of this decrease for earnings?
n. Why does Walmart report a deferred tax liability for property and equipment? Speculate
whether Walmart expanded or contracted based on the information in this section
of the tax note.

PENSIONS

o. What kind of pension plans does Walmart have, and how are earnings affected by each?

Transcribed Image Text:

Exhibit 1.26 Consolidated Statements of Cash Flows for Nike (amounts in millions) (Case 1.2) For the Fiscal Years Ended May 31: 2016 2014 2015 Cash provided by operations: $ 2,693 $ 3,273 $ 3,760 Net income Income charges (credits) not affecting cash: Depreciation 518 606 649 Deferred income taxes (11) (113) (80) Stock-based compensation 177 191 236 Amortization and other 68 43 13 Net foreign aurrency adjustments 56 424 98 Exhibit 1.26 (Continued) Changes in certain working capital components and other assets and liabilities: Decrease (increase) in accounts receivable (Increa se) in inventories (Increa se) in prepaid expenses and other current assets (298) (216) (621) 60 (505) (590) (161) (210) (144) (Decrease) increase in accounts payable, accrued liabilities and income taxes payable Cash provided by operations Cash used by investing activities: 1,237 $ 4,680 525 (889) $ 3,013 $ 3,096 Purchases of short-term investments (5,386) (4,936) (5,367) Maturities of short-term investments 3,932 3,655 2,216 (150) (963) 2,924 Sales of short-term investments 1,126 2,386 Investments in reverse repurchase agreements Additions to property, plant, and equipment Disposals of property, plant, and equipment Decrease (increase) in other assets, net of other liabilities 150 (880) (1,143) 10 Cash used by investing activities $(1,207) $ (175) $(1,034) Cash used by financing activities: Net proceeds from long-term debt issuance Long-term debt payments, including current portion (Decrease) increase in notes payable Payments on capital lease obligations Proceeds from exerdise of stock options and other stock 981 (60) (7) (63) (19) (106) (67) (7) 75 (17) issuances 383 514 507 Excess tax benefits from share-based payment arrangements 132 218 281 Repurchases of common stock Dividends-common and preferred Cash used by financing activities Effect of exchange rate changes on cash and equivalents Net (dearease) inarease in cash and equivalents Cash and equivalents, beginning of year Cash and equivalents, end of year (2,628) (799) $(2,914) (2,534) (899) $(2,790) (3,238) (1,022) S(2,671) (105) $ (714) $ 3,852 $ 3,138 (9) $(1,117) (83) $ 1,632 $ 2,220 $ 3,852 $ 3,337 $ 2,220