ABCDEFGHIJKLMNOPQRSTUVWXYZ
1
Please refer to Tootsie’s 2019 10-K available on canvas for this question.
2
Note: The use of the term “during 2019,” or “fiscal 2019,” means during the fiscal year 2019 that ends on December 31, 2019.
3
You are only responsible for the questions that relate to the materials covered in class up to this point.
4
The rest of the questions are optional (i.e., sub-part i, l, p, q) , but provide a good review for the final.
5
Please read the questions carefully, they do not all relate to the same years.
6
7
d) Tootsie has a large amount of Trademarks on their Balance Sheet. How could that have happened?
8
9
10
11
12
13
e) When does Tootsie recognize revenue (under what conditions)? Where are
14
shipping and handling costs reported on the income statement? Does Tootsie have
15
any significant customer risk (do their sales depend on a small number of large customers)?
16
17
18
19
20
21
22
h) Ignoring the fact that the company has different types of PP&E – based on their
23
accounting estimates, if the company stopped investing in PP&E in how many years
24
would their PP&E become obsolete (you can assume a salvage value of zero)? Does
25
this have to be the case for economic purposes (production)?
26
27
28
29
30
31
32
33
34
35
36
37
i) Provide the journal entries to record Bad-debt Expense and Receivables Write-offs
38
during fiscal 2017. Do any of these items create deferred tax assets or liabilities?
39
40
41
42
43
44
45
46
47
48
j) Did Tootsie record any impairment charges for its intangible assets in 2017, 2018, or 2019?
49
50
51
52
53
54
55
k) Which cost flow assumption does Tootsie use for its Inventory? Has it changed in recent history?
56
57
58
59
60
61
l) What changes to Tootsie’s deferred tax asset valuation allowance occurred in
62
2019? What can we learn about management’s expectations form the change in 2019?
63
64
65
66
67
68
69
70
71
72
p) Why does Tootsie report deferred tax liabilities in its financial statements (one
73
example is sufficient)? Explain why your example might give rise to a deferred tax liability.
74
75
76
77
78
79
80
DEFERRED TAX LIABILITY EXAMPLE
81
82
Suppose we have an asset that is worht $200 and it depreciates fully over 4 years.
83
We use the straight line method to come to our GAAP income, but we use the
84
accelerated method for our tax-code income. This creates a temporary difference*
85
86
Year 1Year 2Year 3Year 4
87
Straight Line Method (GAAP Income)50505050
88
Accelerated Method (Tax Code Income)100702010
89
Difference5020-30-40
90
Tax Rate0.250.250.250.25
91
Deferred Tax Liability12.55-7.5-10
92
BALANCE OF DEFERRED TAX LIABILITY12.517.5100
93
94
*Temporary differences, by definition, are temporary; eventually, they'll reverse!
95
96
97
q) Record Tootsie’s income tax expense for 2018 using a journal entry or the accounting equation.
98
What was their effective tax rate for 2018? Show your calculation.
99
100