The 2016 Form 10-K of Netflix, Inc. includes the following footnote.
The components of provision for income taxes for all periods presented were as follows:
Deferred tax assets (liabilities) were as follows (in thousands):

a. Use the financial statement effects template below to record income tax expense for Netflix for 2016.

b. Netflix reports a deferred tax liability relating to depreciation. Describe how this liability arises. How likely is it that this liability will be paid?
c. Assume that Netflix records deferred tax liabilities at a rate of 35%. The balance sheet reports net property, plant and equipment, of $250,395 thousand. Compute the tax basis for these assets. Hint: recall that the difference between the assets' net book value and the tax basis is the timing difference and that deferred taxes are recorded as timing difference × tax rate.
d. Netflix reports a significant deferred tax asset relating to stock-based compensation. The company has compensated executives and other managers with stock options. Explain why this gives rise to a deferred tax asset.

Question

The 2016 Form 10-K of Netflix, Inc. includes the following footnote. 
The components of provision for income taxes for all periods presented were as follows:
  Deferred tax assets (liabilities) were as follows (in thousands):
  
a. Use the financial statement effects template below to record income tax expense for Netflix for 2016.
  
b. Netflix reports a deferred tax liability relating to depreciation. Describe how this liability arises. How likely is it that this liability will be paid?
c. Assume that Netflix records deferred tax liabilities at a rate of 35%. The balance sheet reports net property, plant and equipment, of $250,395 thousand. Compute the tax basis for these assets. Hint: recall that the difference between the assets' net book value and the tax basis is the timing difference and that deferred taxes are recorded as timing difference × tax rate.
d. Netflix reports a significant deferred tax asset relating to stock-based compensation. The company has compensated executives and other managers with stock options. Explain why this gives rise to a deferred tax asset.

Quizplus · Accepted Answer

The Answer of The 2016 Form 10-K of Netflix, Inc. includes the following footnote. 
The components of provision for income taxes for all periods presented were as follows:
  Deferred tax assets (liabilities) were as follows (in thousands):
  
a. Use the financial statement effects template below to record income tax expense for Netflix for 2016.
  
b. Netflix reports a deferred tax liability relating to depreciation. Describe how this liability arises. How likely is it that this liability will be paid?
c. Assume that Netflix records deferred tax liabilities at a rate of 35%. The balance sheet reports net property, plant and equipment, of $250,395 thousand. Compute the tax basis for these assets. Hint: recall that the difference between the assets' net book value and the tax basis is the timing difference and that deferred taxes are recorded as timing difference × tax rate.
d. Netflix reports a significant deferred tax asset relating to stock-based compensation. The company has compensated executives and other managers with stock options. Explain why this gives rise to a deferred tax asset.