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 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 to In recent court rulings. State X has taken the position operating . dithan concr 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. Athough 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 56 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 program and pays State X $25 million to settle its obligation through December 31, 2011 Question 2. What effect, if any, does eVade's decision to participate in the tax amnesty program have on the amount recognized as of March 31,20127 Which alternative is a more appropriate solution? Explain Alternative 1-The outstanding liability should be reduced to $25 million-the amount Alternative 2 -The outstanding liability should not be adjusted and remains at $60 Applicable Professional Pronouncements that eVade will ultimately settle its obligation for. million

Explanation / Answer

On March 15, 2012 tax amnesty program is established hence conforming to ASC 250-10-50-9 and ASC 250-10-50-11.

As per ASC250-10-50-9 the tax amnesty program participation will cause a liability to be recorded in the current year statements and adjustments for prior periods. When financial statements are presented then the preceding period will have to reflect the adjustment and a change in opening balance for the current year.

Alternative 1 approach is more appropriate as eVade should recognize the amount of liability for $25 million in the financial statements on the 31st of March, 2012 under sales tax payable. This loss will only impact 2012 financial statements and will not re-stated to 2011 financial statements.

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