ACC322 Writing Assignment eVade Pays Up eVade, an online retailer, fulfills its

Question

ACC322 Writing Assignment eVade Pays Up eVade, an online retailer, fulfills its online orders by shipping its products directly to customers in all 50 states. eVade does not have a brick-and-mortar store presence in any state, but does operate distribution centers in various states across the country, including State X. Consistent with its practice in all 50 states, eVade does not collect or remit sales tax to State X In recent court rulings, State X has taken the position that operating a distribution center within a state constitutes nexus and thus would subject that company to collect and remit sales tax on all sales within that state. As of December 31, 2011, eVade has operated its distribution center in State X for five years and has never collected or remitted sales tax to State X. Although the company considers the risk of detection to not be probable, eVade has estimated the total amount of sales tax payable to the state for the past five years to be $50 million plus S6 million in interest and $4 million in penalties. On March 15, 2012, Mr. Needmoney, the governor of State X, established a tax amnesty program. The program provides that any unregistered taxpayer who voluntarily registers to collect sales tax on a prospective basis will be forgiven (1) 50 percent of all unpaid sales tax and (2) all interest and penalties on unpaid taxes. eVade management decides to take advantage of this program. On June 15, 2012, eVade completes the necessary paperwork and other actions to participate in the December 31, 2011 program and pays State X $25 million to settle its obligation through Question 3. What amounts should be recognized in the financial statements for the $25 million payment on June 15, 2012? Explain.

Explanation / Answer

In the first para of question clearly stated that company has never collected and pays the sales tax to StateX. It means there is no current liabilities/ provision are showing in the the financial statement of the company.

Latest Court verdit says nexus has been crack down and all the arrear of the tax to be paid to the State X. The Company is operating from last 5 years. company has estimated the amount of tax for the 5 years to be 50 millions and 6 milliion interest plus 4 million penalty

Company can't way from the liability of sales tax including penalty & Interest. It's better to participate in the amnesty program launched by the Governor of the state and pays only 50% of the tax i.e. 25 millions only

Company would be recognised only 25 millions because there is only paid 25 millions and as discussed above there is no liabilities are showing in the financial statement.

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