The financial statement disclosures for Able Company,a retail chain,revealed the following information regarding the firm's income taxes:

\begin{array}{|l|r|r|}\hline\text { For the Year Ended January 31: } & 2011&2010 \\\hline \text { Income before Income Taxes: } \\\hline \text { United States } &\underline{\$ 3.042}&\underline{\$2614} \\\hline \text { Income Tax Expense } & \\\hline \text { Current: } & \\\hline \text { Federal } & \$ 919&\$ 680 \\\hline \text { State and Local } &\underline{155}& \underline{118 }\\\hline \text { Total Current } & \underline{\$ 1,074}&\underline{\$798} \\\hline \text { Deferred: } & \\\hline \text { Federal } &\$94&\$195 \\\hline \text { State and Local } &\underline{ 22}&\underline{35}\\\hline \text { Total Deferred } &\underline{\$116}&\underline{\$230} \\\hline \text { Total } &\underline{ \$ 1.190}&\underline{\$1028}\\\hline\end{array}

\begin{array}{l}\begin{array}{|ll}\\\hline\text { January } 31\\\hline\text { Components of Deferred Tax Assets and Liabilities } \\\hline\text { Deferred Tax Assets: } \\\hline\text { Self-Insured Benefits } \\\hline\text { Deferred Compensation } \\\hline\text { Inventory } \\\hline \text { Postretirement Health Care Obligation } \\\hline \text { Uncollectible Accounts } \\\hline \text { Other } \\\hline \text { Total Deferred Tax Assets } \\\hline \text { Deferred Tax Liabilities: } \\\hline \text { Depreciation } \\\hline \text { Pensions } \\\hline \text { Other } \\\hline \text { Total Deferred Tax Liabilities } \\\hline \text { Net Deferred Tax Liability }\\\hline\\\end{array}\begin{array}{|c|}\hline 2011 \\\hline \\\hline \\\hline \$ 190 \\\hline 333 \\\hline 48 \\\hline 39 \\\hline 148 \\\hline\underline{ 129} \\\hline\underline{ \$ 887} \\\hline \\\hline \$(1,137) \\\hline(269) \\\hline\underline{(97)} \\\hline \underline{\$(1,503)} \\\hline\underline{\$(616) }\\\hline\end{array}\begin{array}{c|}\hline2010 \\\hline \\\hline \\\hline \$ 154 \\\hline 298 \\\hline 45 \\\hline 43 \\\hline 134 \\\hline\underline{ 54}\\\hline\underline{\$ 728} \\\hline \\\hline \$(946) \\\hline (219)\\\hline(85)\\\hline \underline{\$(1,250)} \\\hline\underline{ \$(522)}\\\hline\end{array}\begin{array}{c|}\hline{2009} \\\hline \\\hline \\\hline \$ 199 \\\hline 185 \\\hline 57 \\\hline 42 \\\hline 114 \\\hline\underline{167}\\\underline{\$ 764 }\\\hline \\\hline \$(827) \\\hline(191) \\\hline\underline{(60)}\\\hline\underline{(1,078)} \\\hline\underline{ \$(314)} \\\hline\end{array}\end{array}

Required:
a.Assuming that Able had no significant permanent differences between book income
and taxable income,did income before taxes for financial reporting exceed or fall
short of taxable income for 2010? Explain.
b.Did income before taxes for financial reporting exceed or fall short of taxable income for 2011? Explain.
c.Will the adjustment to net income for deferred taxes to compute cash flow from
operations in the statement of cash flows result in an addition or a subtraction for
2010? For 2011?
d.Able does not contract with an insurance agency for property and liability insurance;
instead,it self-insures.Able recognizes an expense and a liability each year for
financial reporting to reflect its average expected long-term property and liability
losses.When it experiences an actual loss,it charges that loss against the liability.The
income tax law permits self-insured firms to deduct such losses only in the year sustained.
Why are deferred taxes related to self-insurance disclosed as a deferred tax asset instead of a deferred tax liability? Suggest reasons for the direction of the
change in amounts for this deferred tax asset between 2009 and 2011.
e.Able treats certain storage and other inventory costs as expenses in the year incurred
for financial reporting but must include these in inventory for tax reporting.Why
are deferred taxes related to inventory disclosed as a deferred tax asset? Suggest reasons
for the direction of the change in amounts for this deferred tax asset between
2009 and 2011.
f.Firms must recognize expenses related to postretirement health care and pension
obligations as employees provide services,but claim an income tax deduction only
when they make cash payments under the benefit plan.Why are deferred taxes
related to health care obligation disclosed as a deferred tax asset? Why are deferred
taxes related to pensions disclosed as a deferred tax liability? Suggest reasons for the
direction of the change in amounts for these deferred tax items between 2009 and
2011.
g.Firms must recognize expenses related to uncollectible accounts when they recognize
sales revenues,but claim an income tax deduction when they deem a particular
customer's accounts uncollectible.Why are deferred taxes related to this item disclosed
as a deferred tax asset? Suggest reasons for the direction of the change in
amounts for this deferred tax asset between 2009 and 2011.
h.Able uses the straight-line depreciation method for financial reporting and accelerated
depreciation methods for income tax purposes.Why are deferred taxes
related to depreciation disclosed as a deferred tax liability? Suggest reasons for the
direction of the change in amounts for this deferred tax liability between 2009
and 2011.

Current Replacement Cost Represents

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