Question

Kroger Company is one of the largest retail food companies in the United States as measured by total annual sales. The Kroger Company operates supermarkets, convenience stores, and manufactures and processes food that its supermarkets sell. Using EDGAR (sec.gov) or the company's website (kroger.com), check the company’s annual report for the year ended February 1, 2020.

Required: 1. From the income statement, determine the income tax expense for the fiscal year ended February 1, 2020. Tie that number to the first table in disclosure Note 5: "Taxes Based on Income," and prepare a summary journal entry that records Kroger’s tax expense from continuing operations in the fiscal year ended February 1, 2020. Note: If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in million (i.e., 5,000,000 should be entered as 5).
2a. From Kroger’s Note 5, calculate the total net deferred tax asset or liability as of February 1, 2020, and February 2, 2019.
2b. By how much did that amount change? To what extent did you account for that change in the journal entry you wrote for the first requirement of this case?

Answer 1

To determine Kroger's income tax expense and prepare a journal entry, check the income statement and disclosure Note 5 in their annual report. To calculate the change in the net deferred tax asset or liability, use information from Note 5. It's unlikely that this change would be accounted for in the journal entry.

Step-by-step explanation:

Kroger's income tax expense for the fiscal year ended February 1, 2020 can be found in their annual report. You can refer to the income statement, specifically the line item related to income tax expense, to determine the amount. To tie that number to the first table in disclosure Note 5: 'Taxes Based on Income,' you can review the information provided in that note which should provide more detailed information about the income tax expense.

To prepare a summary journal entry that records Kroger's tax expense from continuing operations in the fiscal year ended February 1, 2020, you will need the specific amount from the income statement. You can then create a journal entry that debits the income tax expense account and credits the income tax payable account by the same amount.

For the second requirement, to calculate the total net deferred tax asset or liability as of February 1, 2020, and February 2, 2019, you can refer to Kroger's Note 5. The note should provide information on the deferred tax assets and liabilities. To calculate the change in the amount, you can subtract the previous year's total from the current year's total.

Based on the provided information, there is no indication of an income tax expense related to the change in the net deferred tax asset or liability. Therefore, it is unlikely that this change would be accounted for in the journal entry for the first requirement.

Answer 2

The Income tax expense is: $833 million

The Net deferred tax asset are:

• Feb 1, 2020: $1,181 million
• Feb 2, 2019: $906 million

The Change and accounting are:

• Increase: $275 million
• Accounted for as credit to "Deferred income tax asset" in journal entry

How is that so?

1. Income Tax Expense and Journal Entry

Income Tax Expense:

The income statement in Kroger's annual report for the fiscal year ended February 1, 2020, shows an income tax expense of $833 million.

Disclosure Note 5:

The first table in Disclosure Note 5, "Taxes Based on Income," provides a breakdown of the income tax expense:

Description | Amount (millions)

Current income tax expense | $558

Deferred income tax expense | $275

Total income tax expense | $833

Journal Entry:

• Date: February 1, 2020
• Account
• Income tax expense 833 (Debit)
• Deferred income tax asset 275 (Credit)
• Income tax payable 558 (Credit)

2a. Net Deferred Tax Asset/Liability

February 1, 2020:

Net Deferred Tax Asset = $1,181 million (from Disclosure Note 5)

February 2, 2019:

Net Deferred Tax Asset = $906 million (from Disclosure Note 5)

2b. Change and Accounting

Change in Net Deferred Tax Asset:

$1,181 million (Feb 1, 2020) - $906 million (Feb 2, 2019) = $275 million increase

Accounting for the Change:

The increase in the net deferred tax asset is accounted for within the journal entry for income tax expense. The $275 million increase is reflected as a credit to the "Deferred income tax asset" account. This increase represents the portion of the income tax expense that is not currently payable but will be paid in future periods.