Income Taxes and Pensions Southern New Hampshire University ACC-610: Financial Reporting II 01:40:01 GMT -05:00 Income Taxes and Pensions If Congress were to vote to remove corporate taxes, Amazon's financial statements would be greatly affected. ASC 740-10 provides guidance for com...
If Congress were to vote to remove corporate taxes, Amazon's financial
statements would be greatly affected. ASC 740-10 provides guidance for companies on how to
report income tax effects on their financial statements when new tax laws are passed by
Congress or existing tax rates are altered. It states, “When deferred tax accounts are adjusted as
required by paragraph 740-10-35-4 for the effect of a change in tax laws or rates, the effect shall
be included in income from continuing operations for the period that includes the enactment
date.” (FASB, ASC 740-10-45). Once Amazon recognizes the potential impact on their financial
statements, they will not only see the benefits of the new tax law reflected in their financial
statements but also ensure compliance with the new legislation.
This decision by Congress would cause Amazon's net profit to rise even more on its
income statement because Amazon won't have to pay taxes on its profits, leading to lower
expenses and higher income on the company's financial statement. There will also be a
significant growth in retained earnings and a few asset accounts on the balance sheet. Retained
earnings are closely tied to a company's net income, therefore, if a company has higher earnings
and lower expenses, its retained earnings will increase. I think we would observe growth in
certain asset categories on the balance sheet, like inventories, leases, goodwill, and property and
equipment, as Amazon has always prioritized expansion in its business model. Having said that,
Amazon does not distribute dividends; rather, the company believes in reinvesting its earnings to
enhance and expand its operations. If they were not obligated to pay corporate taxes, I believe
the rise in profit would provide them with additional funds to reinvest in innovation and business
expansion.
01:40:01 GMT -05:00
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