How does Bb.Q Chicken account for income taxes in its financial statements?
Bb_Q_Chicken Franchise · 2025 FDDAnswer from 2025 FDD Document
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Notes to Consolidated Financial Statements December 31, 2024 and 2023
Income Taxes:
The current provision for income taxes is based on current federal and state statutory rates which are adjusted based on changes in tax laws and significant fluctuations in taxable income. Income taxes are accounted for under the asset and liability method. Under such method, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Additionally, deferred tax assets and liabilities are measured using enacted tax rates expected to be applied to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is recorded to reduce the carrying amounts of deferred tax assets unless it is more likely than not such assets will be realized.
Sales Taxes:
The company is required to collect, on behalf of certain states, sales tax based on a percentage of qualifying sales. The Company's policy is to exclude sales taxes from the transaction price of all revenue when collected, and from expenses when paid. Instead, the company records the collection and payment of sales taxes through a liability account.
New Accounting Standards:
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which supersedes existing guidance for accounting for leases under Topic 840, Leases. The FASB also subsequently issued the following additional ASUs, which amend and clarify Topic 842: ASU 2018-01, Land Easement Practical Expedient for Transition to Topic 842; ASU 2018-10, Codification Improvements to Topic 842, Leases; ASU 2018-11, Leases (Topic 842): Targeted Improvements; ASU 2018-20, Narrow-scope Improvements for Lessors; and ASU 2019-01, Leases (Topic 842): Codification Improvements. The most significant change in the new leasing guidance is the requirement to recognize right of use (ROU) assets and lease liabilities for operating leases on the balance sheet.
The Company elected to adopt these ASUs effective January 1, 2022 and utilize all of the available practical expedients.
Source: Item 23 — RECEIPTS (FDD pages 62–283)
What This Means (2025 FDD)
According to Bb.Q Chicken's 2025 Franchise Disclosure Document, income taxes are accounted for using the asset and liability method, as described in ASC 740, Income Taxes. This method involves recognizing deferred tax assets and liabilities for the future tax consequences of differences between the financial statement carrying amounts of assets and liabilities and their tax bases. These deferred tax assets and liabilities are measured using the enacted tax rates expected to apply when the temporary differences are settled. Any changes in tax rates will affect these deferred tax assets and liabilities and are recognized in the income for the period that includes the enactment date. A valuation allowance is recorded if it is determined that it is unlikely that the deferred tax assets will be realized.
Bb.Q Chicken evaluates its deferred tax assets to determine if a valuation allowance is needed, considering all available positive and negative evidence to assess whether the deferred tax assets will be realized. This evaluation includes factors such as historical operating results, expectations of future profitability, and the duration of statutory carryforward periods. The realization of these assets depends primarily on the company's ability to generate future taxable income.
The FDD also notes that the company's ability to use net operating loss (NOL) carryforwards to reduce future federal taxable income and federal income tax may be limited under Section 382 of the Internal Revenue Code of 1986. This limitation can occur if there are significant ownership changes, such as the purchase or sale of stock by 5% stockholders. For the year ended December 31, 2023, the income tax expense consisted of current state taxes.