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Reformulation for Deferred Tax Asset Valuation Allowance

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  • Under Armour, Inc. reports a total tax expense of $154,112 thousand on its income statement for the 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.

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December 31 ($ thousands) 2015 2014
Deferred tax assets
Stock-based compensation $ 41,960 $ 36,715
Allowance for doubtful accounts and other reserves 35,375 26,328
Accrued expenses 19,999 11,398
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 6,151 5,131
State tax credits, net of foreign impact 4,966 4,245
Deferred compensation 2,080 1,858
Other 6,346 4,592
Total deferred tax assets 181,660 136,350
Less: valuation allowance (23,899) (15,406)
Total net deferred tax assets 157,761 120,944
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 $ 94,479 $ 89,260

Use the above information along with the information below to answer the requirements.

$ thousands 2012 2013
Deferred tax asset $ 66,007 $ 107,931
Valuation allowance 4,110 7,748

a. Use the four-year average valuation allowance to deferred tax assets (2012 through 2015) to reformulate the income statement for each of the four years 2012–2015. See Analyst Adjustments 10.3 for guidance in the reformulation process.

Compute four year average of valuation allowance/deferred tax assets

Round to one decimal place (ex: 0.2345 = 23.5%)

Answer%

Use a rounded percentage for subsequent computations.

Round answers to the nearest whole number.

Use negative signs with answers to indicate adjustments that reduce account balances.

Income Statement Adjustments 2012 2013 2014 2015
Income tax expense $Answer $Answer $Answer $Answer
Net income $Answer $Answer $Answer $Answer

b. Reformulate the balance sheet for each of the four years 2012–2015.

Use rounded answers computed in part a. to complete the table below.

Use negative signs with answers to indicate adjustments that reduce account balances.

Balance Sheet Adjustments 2012 2013 2014 2015
Valuation allowance $Answer $Answer $Answer $Answer
Deferred tax assets Answer Answer Answer Answer
Total assets Answer Answer Answer Answer
Retained earnings Answer Answer Answer Answer

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