Below are excerpts from Safeway's 2010 Annual Report, including its Consolidated Balance Sheets, a portion of Note E, Lease Obligations, and Note H, Taxes on Income, from the Notes to the Consolidated Financial Statements. Safeway is one of the largest food and drug retailers in North America.
Required:
a) If Safeway had accounted for all its lease transactions as operating leases, how much higher/lower would cumulative net income before taxes have been as of Year-end 2009 and Year-end 2010?
b) If Safeway had accounted for all its lease transactions as operating leases, how much higher/lower would net income before taxes have been for fiscal year 2010?
c) Write the transaction that would restate Safeway's balance sheet as of year-end 2010, if it classified all of its leases as operating leases. Use the tax rate implicit in the deferred tax liability relating to property to calculate the deferred tax asset and deferred tax liability relating to capital leases.
d) Write the accounting journal entry corresponding to recognition of 2010 income tax expense, arising from all tax jurisdictions.
e) Write the accounting journal entry corresponding to recognition of 2010 income tax expense. Make sure to identify any changes in deferred tax assets and deferred tax liability separately. You may assume that Safeway made no corporate acquisitions that would have affected balances in deferred tax accounts.