Under Cinnabon's accounting policy election, how does the company account for income taxes?
Cinnabon Franchise · 2025 FDDAnswer from 2025 FDD Document
The Company is included in the consolidated federal income tax return filed by the Parent and is party to an informal tax sharing agreement between the Parent and other members of the consolidated group. The Company is a single-member LLC and has made an accounting policy election to present a tax provision in accordance with ASC 740 – Income Taxes. Accordingly, the Company accounts for income taxes using the asset and liability method. Under this method, deferred income taxes are recognized for the tax consequences of "temporary differences" by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities.
Source: Item 23 — Receipts (FDD pages 114–399)
What This Means (2025 FDD)
According to the 2025 Cinnabon Franchise Disclosure Document, Cinnabon Franchisor SPV LLC has made an accounting policy election to present a tax provision in accordance with ASC 740 – Income Taxes. As a single-member LLC, Cinnabon accounts for income taxes using the asset and liability method.
Under the asset and liability method, deferred income taxes are recognized for the tax consequences of "temporary differences." These differences arise from variations between the financial statement carrying amounts and the tax bases of existing assets and liabilities. The calculation involves applying enacted statutory tax rates applicable to future years.
This accounting method means that Cinnabon recognizes the future tax effects of transactions and events that have already occurred. It provides a more comprehensive view of the company's tax position by considering both current and future tax liabilities and assets. For a prospective franchisee, this information is relevant for understanding the financial reporting practices of the franchisor, though it does not directly impact the franchisee's own tax obligations.