Interpreting Income Tax Disclosures. Disclosures related to income taxes for The Coco-Cola company (Coca-Cola) for 20062008 appear in Exhibit 9.9.

REQUIRED

a. Why are Coca-Colas average tax rates so low?

b. Is it likely that Coca-Cola has recognized a net asset or a net liability on its balance sheet for pension and other postretirement benefit plans? Explain your reasoning.

c. Coca-Cola discloses that the valuation allowance on deferred tax assets relates primarily to net operating loss carryforwards. Assume for purposes of this question that Coca-Cola 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 Coca-Cola initially recognizes the net operating loss carryforwards.

d. Refer to Requirement c. Indicate the effect on income tax expense and income tax payable in the year Coca-Cola benefits from the net operating loss carryforwards.

e. Interpret Coca-Colas recognition of net deferred tax liabilities, instead of deferred tax assets, for equity investments in 2008.

Exhibit 9.9

The Coca-Cola Company

Income Tax Reconciliation and Components o Deferred Taxes

(amounts in millions)

(problem 9.25)

Income Tax Reconciliation U.S. Statutory Tax Rate State Taxes, Net of Federal Tax Benefit Foreign Earnings Taxes at Lower Rates Equity Income or Loss Other Operating Charges 2008 2007 2006 Other Average Tax Rate Components of Deferred Taxes on December 31: \begin{tabular}{ccc} 35.0% & 35.0% & 35.0% \\ 0.8 & 0.6 & 0.7 \\ (14.3) & (10.8) & (11.4) \\ 0.2 & (1.3) & (0.6) \\ 0.7 & 0.5 & 0.6 \\ (0.5) & (0.0) & (1.5) \\ 21.9% & 24.0%% & 22.8% \\ \hline \hline \end{tabular} Deferred Tax Assets Property, Plant and Equipment Trademarks and Other Intangible Assets 2008 2007 Equity Method Investments Other Liabilities Benefit Plans Net Operating Loss Carryforwards Other Total Deferred Tax Assets (Gross) Valuation Allowance Total Deferred Tax Assets (Net) Deferred Tax Liabilities Property, Plant and Equipment Trademarks and Other Intangible Assets Equity Method Investments \begin{tabular}{rr} $33 & $35 \\ 79 & 76 \\ 339 & 238 \\ 447 & 845 \\ 1,171 & 881 \\ 494 & 554 \\ 532 & 266 \\ \hline$3,095 & $2,905 \\ \hline(569) & $(611) \\ \hline$2,526 & $2,294 \\ \hline \end{tabular} Other Liabilities \begin{tabular}{rr} $(667) & $(670) \\ (1,974) & (1,925) \\ (267) & (841) \\ (101) & (90) \\ $(3,238)(229) & (383) \\ $(3,909)$(712) \\ \hline \end{tabular} Source: The Coca-Cola Company, Form 10-K for the Fiscal Year ended December 31, 2008. Income Tax Reconciliation U.S. Statutory Tax Rate State Taxes, Net of Federal Tax Benefit Foreign Earnings Taxes at Lower Rates Equity Income or Loss Other Operating Charges 2008 2007 2006 Other Average Tax Rate Components of Deferred Taxes on December 31: \begin{tabular}{ccc} 35.0% & 35.0% & 35.0% \\ 0.8 & 0.6 & 0.7 \\ (14.3) & (10.8) & (11.4) \\ 0.2 & (1.3) & (0.6) \\ 0.7 & 0.5 & 0.6 \\ (0.5) & (0.0) & (1.5) \\ 21.9% & 24.0%% & 22.8% \\ \hline \hline \end{tabular} Deferred Tax Assets Property, Plant and Equipment Trademarks and Other Intangible Assets 2008 2007 Equity Method Investments Other Liabilities Benefit Plans Net Operating Loss Carryforwards Other Total Deferred Tax Assets (Gross) Valuation Allowance Total Deferred Tax Assets (Net) Deferred Tax Liabilities Property, Plant and Equipment Trademarks and Other Intangible Assets Equity Method Investments \begin{tabular}{rr} $33 & $35 \\ 79 & 76 \\ 339 & 238 \\ 447 & 845 \\ 1,171 & 881 \\ 494 & 554 \\ 532 & 266 \\ \hline$3,095 & $2,905 \\ \hline(569) & $(611) \\ \hline$2,526 & $2,294 \\ \hline \end{tabular} Other Liabilities \begin{tabular}{rr} $(667) & $(670) \\ (1,974) & (1,925) \\ (267) & (841) \\ (101) & (90) \\ $(3,238)(229) & (383) \\ $(3,909)$(712) \\ \hline \end{tabular} Source: The Coca-Cola Company, Form 10-K for the Fiscal Year ended December 31, 2008