Case 09-9 Bricks & Mortar

Background

Bricks & Mortar Co. (The Company) an SEC registrant, is a manufacturer of construction equipment. The

Company has been in business for more than 50 years and operating profitably for the past 25 years. In

addition, the company has an applicable tax rate of 40% and no unused tax loss or credit carryforwards.

The Company’s fiscal year ends on December 31.

Relevant Issue

This case provides an opportunity to use accounting authority to account for the two issues in the

case. Under issue 1 we must determine the adjustment required to the Company’s preliminary 2009

financial statements to comply with ASC 740-10 by completing the table that was provided and justify

our position. In addition, we must determine what periods the interest should be accrued in 2010 for

financial reporting purposes. Under issue 2 we must do the same thing in issue one only using the facts

from issue 2 instead.

Case Facts

In prior years, Bricks & Mortar determined it had no uncertain positions that required recognition under

ASC 740. The last date of payment of fiscal year 2009 tax is March 17, 2010 for purposes of accruing

interest and penalties under the tax law.

The Company is preparing its financial statements for the year ended December 31, 2009. In

determining the amount of its 2009 tax provision, the company has prepared a draft of its 2009 tax

return. The following is the company’s tax working papers: Balance sheet accounts Current tax liability

$2,000 and deferred tax liability $800---Income statement accounts Current tax expense $2,000 and

deferred tax expense $200.

Management has identified two deductions, taken in its 2009 draft return, for which the tax law is not

clear as to whether those tax provisions should reduce the company’s 2009 tax liability. The Company