Question
eVade Pays Up (Deloitte Trueblood Case 14-7)
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 court rulings in 2005, State X had 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 $6 million in interest and $4 million in penalties.
On March 15, 2012, Mr. Moneyman, 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.
There are three main accounting issues in the case:
1) As of December 31, 2011, what amount, if any, of sales taxes due should be recognized in eVade’s financial statements?
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, 2012?
3) What amounts should be recognized in the financial statements for the $25 million payment on June 15, 2012?
For issue 1) and issue 2),
a. Prepare a problem statement that succinctly summarizes the issue and incorporates/implies at least two alternative solutions.
b. Search the FASB Codification to identify literature that either deals directly with the accounting issue or that provides guidance on an analogous accounting issue. List and describe the authoritative literature in support of each of your alternatives. You may place longer excerpts of the Codification text in an appendix that does not count toward the page limit.
c. Present your analysis of the issue by evaluating the alternative solutions through research using conceptual analysis and application of the identified authoritative literature. Present your recommendation of the “best” solution and explain.
d. Summarize the financial statement and disclosure impact of your recommendation, if any.
For issue 3), prepare a journal entry to record the payment.
Delivering a high-quality product at a reasonable price is not enough anymore.
That’s why we have developed 5 beneficial guarantees that will make your experience with our service enjoyable, easy, and safe.
You have to be 100% sure of the quality of your product to give a money-back guarantee. This describes us perfectly. Make sure that this guarantee is totally transparent.
Read moreEach paper is composed from scratch, according to your instructions. It is then checked by our plagiarism-detection software. There is no gap where plagiarism could squeeze in.
Read moreThanks to our free revisions, there is no way for you to be unsatisfied. We will work on your paper until you are completely happy with the result.
Read moreYour email is safe, as we store it according to international data protection rules. Your bank details are secure, as we use only reliable payment systems.
Read moreBy sending us your money, you buy the service we provide. Check out our terms and conditions if you prefer business talks to be laid out in official language.
Read more