Read the following Case Study:
Hopkins, J. J. (2017). Accounting for income taxes at Apple Inc.Harvard Business Publishing.
Review Appleâ€™s financial statements included in the Case Study,including Note 5 (Exhibit 1), and answer the following questionsrelated to permanently reinvested earnings:
How much cash, cash equivalents, and marketable securities doApple shareholders really own, net of the IRS claims on this cash?In other words, if Apple liquidated these investments at the valueon the balance sheet, repatriated the cash, and paid a one-timedividend, how much would shareholders receive? (Hint: Assume thatall the income that Apple has earned in foreign subsidiaries hasbeen converted into cash or investments. Also, when Apple says,â€œU.S. income taxes have not been provided,â€ it is not referring tothe payment of taxes, but to the recognition of taxes from afinancial reporting perspective.)
What effect would this transaction from Question 1 have onAppleâ€™s reported earnings? Would it differ between the US GAAP andIFRS?
Alternatively, instead of distributing a dividend, Apple choseto reinvest the foreign earnings by purchasing a company domiciledoutside of the United States. How much cash (net of taxes) wouldApple have at its disposal for such a purpose?
What effect would the transaction in Question 3 have on reportedearnings? Would it differ between the US GAAP and IFRS?
Finally, assume that Congress designated a repatriation taxholiday and allowed U.S. corporations to repatriate foreign cashwithout paying any U.S. income taxes on them. How would this affectAppleâ€™s net income if it repatriated all its foreign-basedcash?
Questions related to Appleâ€™s balance sheet:
How much in deferred tax assets/liabilities are on Appleâ€™sbalance sheet as of 2015 and where do they appear? What is thesingle-largest component of these deferred taxes and from what doesit result?
What valuation allowance did Apple record in 2015? What doesthis imply about Appleâ€™s future? Would the valuation allowancediffer between the US GAAP and IFRS? Explain in detail why or whynot.
Questions related to Appleâ€™s income statement:
If Apple paid income taxes in the US at the statutory corporateincome tax rate, how much would Apple owe in U.S. income taxes in2015? How much did Apple pay to the U.S. government in income taxesduring 2015? Why are these amounts different? Hint: refer back tothe module where we discussed international taxation during thiscourse.
Does Apple have any uncertain tax positions? What do they imply,and what effect do these uncertain tax positions have on currentincome tax expense? Does the accounting for uncertain income taxpositions differ between the US GAAP and IFRS? Be specific.
What amount of current income tax expense did Apple record in2015? How much cash did Apple pay in taxes in 2015? Why are theseamounts different?
Other questions related to Apple:
Expand in some level of detail what types of accounting-relatedcultural issues Apple might face when operating in differentcountries around the world, especially with regards to thecombination of local country statutory financial statement andrelated reporting requirements compared to the US GAAP reportingrequirements.
Apple is obviously dealing with huge amounts of investments andcash, a large amount of which is located overseas and most likelyinvested in foreign currencies. Based upon what you have learned inthis course, what are some of the foreign-currency managementtechniques Apple is most likely practicing in the management ofthese investments and cash sitting in bank and investment accountsacross the globe? Be specific.
Your Word document should be 8-10 pages in length (not includingthe required cover and references pages). Submissions in excess of10 pages are permitted.
Format your submission according to the CSU-Global Guide toWriting & APA.
You may submit an Excel file as a separate file supporting yoursubmission. If you include Exhibits as part of your Word documentsupporting any quantitative calculations, include them as part ofyour submission.
Be sure to discuss and reference concepts taken from therequired and recommended readings throughout the course and alsoyour own relevant research.
You must include a minimum of six credible, academic, orprofessional references beyond the course text, required andrecommended readings, or other course materials as part of yoursubmission.
Review the grading rubric to see how you will be graded for thisassignment.