Analyzing and Interpreting Tax Footnote (Financial Statement Effects Template)

Under Armour Inc. reports total tax expense of $154,112 thousand on its income statement for year ended December 31, 2015, and paid cash of $99,708 thousand for taxes. The tax footnote in the company’s 10-K filing, reports the following deferred tax assets and liabilities information.

December 31 ($ thousands) 2015 2014 Deferred tax assets Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . $40,406 $35,161 Allowance for doubtful accounts and other reserves. . . . . . 33,821 24,774 Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,99911,398 Foreign net operating loss carryforward . . . . . . . . . . . . . . . 19,600 16,302 Deferred rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,991 11,005 Inventory obsolescence reserves. . . . . . . . . . . . . . . . . . . . . 11,956 8,198 Tax basis inventory adjustment . . . . . . . . . . . . . . . . . . . . . . 10,019 5,845 U.S. net operating loss carryforward . . . . . . . . . . . . . . . . . . 9,217 4,733 Foreign tax credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,1515,131 State tax credits, net of foreign impact . . . . . . . . . . . . . . . . 4,966 4,245 Deferred compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,0801,858 Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,346 4,592 Total deferred tax assets. . . . . . . . . . . . . . . . . . . . . . . . . . 178,552 133,242 Less: valuation allowance. . . . . . . . . . . . . . . . . . . . . . . . . (24,043) (15,550)

Total net deferred tax assets. . . . . . . . . . . . . . . . . . . . . . . 154,509 117,692 Deferred tax liability Property, plant and equipment. . . . . . . . . . . . . . . . . . . . . . . (31,069) (17,638)

Intangible asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (22,820) (7,010)

Prepaid expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (8,766) (6,424)

Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (627) (612)

Total deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . (63,282) (31,684)

Total deferred tax assets, net . . . . . . . . . . . . . . . . . . . . . . $91,227 $86,008 Required

????????????Under Armour’s deferred tax assets increased during the most recent fiscal year. What explains the change?

????????????Did Under Armour’s deferred tax liabilities increase or decrease during the most recent fiscal year?

Explain how the change arose.

c????????This company’s valuation allowance relates to foreign net operating tax losses. Explain how tax losses give rise to deferred tax assets. Why does the company record a valuation account? What proportion of these losses, at December 31, 2015, does the company believe will likely expire unused?

d????????Explain how the valuation allowance affected 2015 net income.

????e????AUse the financial statement effects template to record Under Armour’s income tax expense for the fiscal year 2015 along with the changes in both deferred tax assets and liabilities. Assume that income taxes payable increased by $59,623 thousand.