Google Annual Report

Research Project #2 Google 2011 Annual Report

1. The effective tax rate mentioned in the 2011 Annual Report by Google is 21%, this is calculated by adding both current federal and state income taxes which comes out to be $1,998 (in millions) and divide this number by net income for 2011 of $9,737 (in millions), multiplied by 100 and this gives you a percentage of 21%.

2. Using the statement of cash flows, the companies cash tax rate is calculated by the cash taxes paid $731 (in millions) divided by the pretax income from continuing operations of $12,326 (in millions), multiplied by 100 gives you 6%.

3. In the taxes note Google specifically states that international income is from its Irish Subsidiary. Having talked about this in class earlier in the quarter, it is probably due to Ireland’s low corporate tax rate of 12.5%. Google’s effective tax rate is decreased because the United States says that any income earned outside the U.S. if it is reinvested and any foreign taxes paid then it can be deferred. In the case of Google, they say in the financial statements that the income from its Irish subsidiary will be reinvested back into the business, causing it to be deferred for U.S. tax purposes.

4. The item that creates the largest deferred tax asset is Stock-based compensation expense of $288 million. It is a temporary deferred tax asset because the amount expensed on the financial statements is not tax deductible. When the compensation is exercised, then it will be tax deductible.

5. The item that creates the largest deferred tax liability is depreciation and amortization of $479 million. Recognizing those obligations in its financial accounting on a different timetable than when it paid them in its tax accounting. For tax MACRS lets companies depreciate assets quicker than under GAAP for financial statements. The quicker depreciation creates a bigger expense now rather than later, when it is currently being depreciated in the books, and when...