The following is a portion of the February 2014 and 2013 balance sheets of Macy's, Inc.: Macy's debt to equity ratio for the year ended February 1, 2014, was 2.46, calculated as ($21,634 - 6,249) 6,249. Some analysts argue that long-term deferred tax liabilities should be excluded from liabilities when computing the debt to equity ratio. Required: 1. What is the rationale for the argument that long-term deferred tax liabilities should be excluded from liabilities when computing the debt to equity ratio? 2. What would be the effect on Macy's debt to equity ratio of excluding deferred tax liabilities from its calculation? What would be the percentage change? 3. What might be the rationale for not excluding long-term deferred tax liabilities from liabilities when computing the debt to equity ratio?

February 1, 2014February 2, 2013 LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Short-term debt Merchandise accounts payable Accounts payable and accrued liabilities Income taxes Deferred income taxes $ 463 1,691 2,810 362 400 $124 1,579 2,610 355 407 5,075 6,806 1,238 1,821 Total Current Liabilities Long-Term debt Deferred Income Taxes Other Liabilities Shareholders Equity 5,726 6,728 1,273 1,658 Common stock (364.9 and 387.7 shares outstanding) Additional paid-in capital Accumulated equity Treasury stock Accumulated other comprehensive loss 2,522 6,235 (1,847) (665) 6,249 $21,634 4 3,872 5,108 (2,002) (931) 6,051 $20,991 Total Shareholders' Equity Total Liabilities and Shareholders' Equity