Disclosures related to income taxes for The Coca-Cola Company (Coke) for 2006-2008 appear in Exhibit 8.11.
Required
a. Why are Coke's average tax rates so low?
b. Is it likely that Coke has recognized a net asset or a net liability on its balance sheet for pension and other postretirement benefit plans? Explain your reasoning.
c. Coke discloses that the valuation allowance on deferred tax assets relates primarily to net operating loss carryforwards. Assume for purposes of this question that Coke had recognized a valuation allowance each year exactly equal to the deferred tax assets recognized for net operating loss carryforwards. Indicate the effect on income tax expense and income tax payable in the year Coke initially recognizes the net operating loss carryforwards.
d. Refer to Part c. Indicate the effect on income tax expense and income tax payable in the year Coke benefits from the net operating loss carryforwards.
e. Interpret Coke's recognition of net deferred tax liabilities, instead of deferred tax assets, for equity investments in 2008.
f. Why does Coke report tax effects of equity income and investments in the income tax reconciliation and in deferred tax liabilities?
g. Interpret Coke's recognition of deferred tax liabilities, instead of deferred tax assets, for intangibleassets.