The 2007 financial statements for The Walt Disney Company can be found on the Internet.
1. Using the financial statements and information contained in the notes, determine how much income tax expense Disney reported for the fiscal year ended September 29, 2007.
2. Referring to the note on income taxes, how much of the tax expense relates to current items, and how much relates to deferred items?
3. Disney notes that its effective income tax rate for 2007 was 37.2%. Using information from the income statement, determine how that number was computed.
4. Note that Disney has a valuation allowance of $54 million. In the journal entry establishing this allowance account, what would have been the debit and the credit?
5. Why was Disney’s effective income tax rate higher than the U.S. federal income tax rate of 35.0% in 2007?
6. Explain why the effective income tax rate differs from company to company.
7. Do differences in effective tax rates reflect the impact of temporary book-tax differences or permanent book-tax differences? Explain.
8. How much cash did Disney pay for income taxes during 2007?
9. In the Operating Activities section of Disney’s 2007 statement of cash flows, a subtraction of $260 million is shown and labeled as “Deferred income taxes.” Why is this amount subtracted?