Consider the following income tax footnote information for Oracle for the fiscal year ended May 31,...
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Consider the following income tax footnote information for Oracle for the fiscal year ended May 31, 2019 (fiscal year 2019). The following is a geographical breakdown of income before the provision for income taxes: Year Ended May 31 (in millions) 2018 2017 2019 $ 3,774 $ 3,366 9,058 $ 3,674 Domestic... Foreign.... 8,494 8,006 Income before provision for income taxes . $12,268 $12,424 $11,680 The provision for income taxes consisted of the following: Year Ended May 31 ($ in millions) 2019 2018 2017 Current provision: Federal... $ 979 $ 936 $8,320 264 1,100 State... 300 257 Foreign. . Total current provision .. 1,097 1,475 $2,376 $9,684 $2,668 Deferred benefit: Federal. . State. .. Foreign.. $ (158) (29) (253) $ 483 $ (827) (26) (28) (1,646) Total deferred benefit.. Total provision for income taxes... $(1,191) $ (847) $ (440) $ 1,185 $8,837 $2,228 The provision for income taxes differed from the amount computed by applying the federal statutory rate to our income before provision for income taxes as follows: The provision for income taxes differed from the amount computed by applying the federal statutory rate to our income before provision for income taxes as follows: Year Ended May 31 ($ in millions) 2019 2018 2017 U.S. federal statutory tax rate.. Tax provision at statutory rate Impact of the Tax Act of 2017: One-time transition tax.. 21.0% 29.2% 35.0% $2,576 $3,629 $4,088 (529) 7,781 Deferred tax effects.. Foreign earnings at other than United States rates State tax expense, net of federal benefit...... Settlements and releases from judicial decisions and statute expirations, net... . Domestic production activity deduction Federal research and development credit Stock-based compensation Other, net.... 140 (911) (995) (789) (1,312) 197 142 150 (189) (119) (127) (149) (132) (252) (87) (174) (302) - (158) (201) 81 6 (114) Total provision for income taxes. $1,185 $8,837 $2,228 continued The components of our deferred tax assets and liabilities were as follows: May 31 (in millions) 2019 2018 Deferred tax assets: Accruals and allowances. $ 541 $ 567 Employee compensation and benefits. Differences in timing of revenue recognition. Basis of property, plant and equipment and intangible assets. Tax credit and net operating loss carryforwards 646 664 322 338 1,238 3,717 2,614 Total deferred tax assets. 6,464 4,183 Valuation allowance.... (1,266) (1,308) Total deferred tax assets, net. 5,198 2,875 Deferred tax liabilities: Unrealized gain on stock Acquired intangible assets. GILTI deferred . (78) (973) (1,515) (78) (1,254) Basis of property, plant and equipment and intangible assets.. Other. (158) (48) (200) Total deferred tax liabilities.. (2,766) (1,538) Net deferred tax assets $2,432 $1,337 Required a. What is the total amount of income tax expense that Oracle reports in its fiscal 2019 income state- ment? What portion of this expense did Oracle pay during 2019 or expect to pay in 2020? b. Explain how the deferred tax liability called "Acquired intangible assets" arises. Under what cir- cumstances will the company settle this liability? Under what circumstances might this liability be deferred indefinitely? e, Explain how the deferred tax asset called "Employee compensation and benefits" arises. Why is it recognized as an asset? d. Explain how the deferred tax asset called "Tax credit and net operating loss carryforwards" arises. Under what circumstances will Oracle realize the benefits of this asset? e. Oracle reports a 2019 valuation allowance of $1,266 million. How does this valuation allowance arise? How did the change in valuation allowance for 2019 affect net income? Valuation allowances typically relate to questions about the realizability of tax loss carryforwards. Under what circum- stances might Oracle not realize the benefits of its tax loss carryforwards? f. Calculate Oracle's effective (average) tax rate for each year. g. Oracle reconciles the difference between its total provision for income tax and the statutory rate. What item explains most of the difference in fiscal 2017 compared to fiscal 2018? h. If not for the effects of the Tax Cuts and Jobs Act of 2017, what would have been Oracle's effective tax rate each year? Consider the following income tax footnote information for Oracle for the fiscal year ended May 31, 2019 (fiscal year 2019). The following is a geographical breakdown of income before the provision for income taxes: Year Ended May 31 (in millions) 2018 2017 2019 $ 3,774 $ 3,366 9,058 $ 3,674 Domestic... Foreign.... 8,494 8,006 Income before provision for income taxes . $12,268 $12,424 $11,680 The provision for income taxes consisted of the following: Year Ended May 31 ($ in millions) 2019 2018 2017 Current provision: Federal... $ 979 $ 936 $8,320 264 1,100 State... 300 257 Foreign. . Total current provision .. 1,097 1,475 $2,376 $9,684 $2,668 Deferred benefit: Federal. . State. .. Foreign.. $ (158) (29) (253) $ 483 $ (827) (26) (28) (1,646) Total deferred benefit.. Total provision for income taxes... $(1,191) $ (847) $ (440) $ 1,185 $8,837 $2,228 The provision for income taxes differed from the amount computed by applying the federal statutory rate to our income before provision for income taxes as follows: The provision for income taxes differed from the amount computed by applying the federal statutory rate to our income before provision for income taxes as follows: Year Ended May 31 ($ in millions) 2019 2018 2017 U.S. federal statutory tax rate.. Tax provision at statutory rate Impact of the Tax Act of 2017: One-time transition tax.. 21.0% 29.2% 35.0% $2,576 $3,629 $4,088 (529) 7,781 Deferred tax effects.. Foreign earnings at other than United States rates State tax expense, net of federal benefit...... Settlements and releases from judicial decisions and statute expirations, net... . Domestic production activity deduction Federal research and development credit Stock-based compensation Other, net.... 140 (911) (995) (789) (1,312) 197 142 150 (189) (119) (127) (149) (132) (252) (87) (174) (302) - (158) (201) 81 6 (114) Total provision for income taxes. $1,185 $8,837 $2,228 continued The components of our deferred tax assets and liabilities were as follows: May 31 (in millions) 2019 2018 Deferred tax assets: Accruals and allowances. $ 541 $ 567 Employee compensation and benefits. Differences in timing of revenue recognition. Basis of property, plant and equipment and intangible assets. Tax credit and net operating loss carryforwards 646 664 322 338 1,238 3,717 2,614 Total deferred tax assets. 6,464 4,183 Valuation allowance.... (1,266) (1,308) Total deferred tax assets, net. 5,198 2,875 Deferred tax liabilities: Unrealized gain on stock Acquired intangible assets. GILTI deferred . (78) (973) (1,515) (78) (1,254) Basis of property, plant and equipment and intangible assets.. Other. (158) (48) (200) Total deferred tax liabilities.. (2,766) (1,538) Net deferred tax assets $2,432 $1,337 Required a. What is the total amount of income tax expense that Oracle reports in its fiscal 2019 income state- ment? What portion of this expense did Oracle pay during 2019 or expect to pay in 2020? b. Explain how the deferred tax liability called "Acquired intangible assets" arises. Under what cir- cumstances will the company settle this liability? Under what circumstances might this liability be deferred indefinitely? e, Explain how the deferred tax asset called "Employee compensation and benefits" arises. Why is it recognized as an asset? d. Explain how the deferred tax asset called "Tax credit and net operating loss carryforwards" arises. Under what circumstances will Oracle realize the benefits of this asset? e. Oracle reports a 2019 valuation allowance of $1,266 million. How does this valuation allowance arise? How did the change in valuation allowance for 2019 affect net income? Valuation allowances typically relate to questions about the realizability of tax loss carryforwards. Under what circum- stances might Oracle not realize the benefits of its tax loss carryforwards? f. Calculate Oracle's effective (average) tax rate for each year. g. Oracle reconciles the difference between its total provision for income tax and the statutory rate. What item explains most of the difference in fiscal 2017 compared to fiscal 2018? h. If not for the effects of the Tax Cuts and Jobs Act of 2017, what would have been Oracle's effective tax rate each year?
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