Access the 2013 Annual report for Google and answer the following questions. You
ID: 2423138 • Letter: A
Question
Access the 2013 Annual report for Google and answer the following questions. You can access the annual report at www.google.com
a) Using information from the company's income statement and income taxes footnote, what was the company's effective tax rate for 2013? Show how the rate is calculated.
b) Using information from the statement of cash flows, calculate the company's cash tax rate.
c) What does the company's income taxes note tell you about where the company earns its international income? Why does earning income in these countries cause the effective tax rate to decrease?
d) What item creates the company's largest deferred tax asset? Explain why this item creates a deductible temporary difference.
e) What item creates the company's largest deferred tax liability? Explain why this item creates a taxable temporary difference.
f) How does the company classify its income taxes payable related to its unrecognized tax benefits on the balance sheet?
g) How does the company treat interest and penalties related to its unrecognized tax benefits?
Explanation / Answer
Answer:a) The company reports an effective tax rate of 15.74% for 2013, computed as $2282 / $14496.
Answer:b) The company’s cash tax rate for 2013 was 13.32%, computed as $1932 / $14496.
Answer:c) In the Income Taxes note , the company informs investors that “substantially all of the income from foreign operations was earned by an Irish sbusidiary. Earning income in Ireland causes the company’s effective tax rate to decrease. Under U.S. tax laws, the income earned in these countries is not subject to U.S. tax until repatriated to the United States.
Answer:d) The company’s largest deferred tax asset relates to “Stock-based compensation expense.” The temporary difference results because the company accrues stock-based compensation under ASC 718 but cannot deduct the expense for tax purposes until the employees exercise the stock options or earn the right to receive the stock.
Answer:e) Identified intangibles. The temporary difference results because the company has created a financial accounting basis in these assets under ASC 805 as a result of business acquisitions. These assets did not receive a corresponding tax basis. This creates a taxable temporary difference that will result in a future tax liability as the basis of the intangibles is recovered on the income statement (either through amortization or impairment).
Answer:f) The company does not specifically state in its Income Taxes note how it classifies liabilities for unrecognized tax benefits.