Analyzing and Interpreting Tax Footnote (Financial Statement Effects Template) Under Armour, Inc. reports total tax expense of $74,661 (in thousands) on its income statement for the year ended December 31, 2012, and paid cash of $57,739 (in thousands) for taxes. The tax footnote in the company's 10-K filing, reports the following deferred tax assets and liabilities information.

December 31 (In thousands)	2012	2011
Deferred tax assets
Allowance for doubtful accounts and other reserves	$14,000	$9,576
Stock-based competition	13,157	11,238
Foreign net operating loss carryforward	12,416	11,078
Deferred Rent	6,007	4,611
Inventory obsolescence reserves	4,138	3,789
Tax basis inventory adjustment	3,581	4,317
State tax credits, net of federal tax impact	2,856	--
Foreign tax credits	2,210	1,784
Deferred compensation	1,170	1,448
Other	4,918	3,427
Total deferred tax assets	64,453	51,268
Less: valuation allowance	(3,966)	(1,784)
Total net deferred tax assets	60,487	49,484
Deferred tax liabilities Intangible asset	(610)	(341)
Prepaid expenses	(4,153)	(2,968)
Property, plant and equipment	(10,116)	(13,748)
Total deferred tax liabilities	(14,879)	(17,057)
Total deferred tax assets, net	$45,608	$32,427

(a) Did Under Armour's deferred tax assets increase or decrease during the most recent fiscal year. By what amount

increase

decrease

by $Answer Which of the following best summarizes our interpretation of an increase in a company's deferred tax assets for the most recent year?

Deferred tax assets increased during the year, which means that the company paid more taxes than it reported as tax expense.

Deferred tax assets generally arise when tax deductions are less than tax expense reported in the income statement. Because deferred tax assets increased, we can concluded that tax deductions were greater than expense.

Deferred tax assets increased during the year, which means that the company's taxable income was less than in the prior year.

Deferred tax assets increased during the year, which means that the company reported more as tax expense than it paid in taxes.

(b) Did Under Armour's deferred tax liabilities increase or decrease during the most recent fiscal year?

increase

decrease

by $Answer Which of the following statements best describes the reason for the change in deferred tax liabilities during the most recent year?

The deferred tax liabilities increased during the recent year because they paid down their tax liability.

The deferred tax liabilities decreased during the recent year possibly because the company is now depreciating its fixed assets more for GAAP purposes than it is for tax purposes.

The deferred tax liabilities decreased during the recent year as a result of the reduction in its effective tax rate.

The deferred tax liabilities decreased during the recent year because the company's taxable income was less than in prior year.

(c) The company recorded a valuation allowance during the year. This allowance relates to foreign net operating tax losses. Which of the following statements appears to be false regarding the foreign net operating tax losses and the valuation allowance.

The company's tax returns have reported losses in foreign jurisdictions. As of the end of 2012, there were insufficient profits and the tax losses could not be used in the current period.

As of December 31, 2012, the company believed some of the deferred tax assets associated with foreign tax loss carryforwards would expire unused. Therefore, a valuation allowance was recorded against the company's net deferred tax assets.

An increase to a valuation allowance will decrease current year income.

An increase to a valuation allowance will increase current year income.

(d) What proportion of the foreign net operating losses does the company believe will likely expire unused? (Round your answer to the nearest whole number) Answer% (e) Use the financial statement effects template to record Under Armour's income tax expense for the current fiscal year 2012 along with the changes in both deferred tax assets and liabilities. Assume that the amount needed to balance the tax transaction represents the amount payable to tax authorities.

	Balance Sheet
Transaction	Cash Asset	+	Noncash Assets	=	Liabilities	+	Contributed Capital	+	Earned Capital
Record tax expense, part cash and part deferred	Answer		Answer		Answer		Answer		Answer

Income Statement
Revenue	-	Expenses	=	Net Income
Answer		Answer		Answer