Subject: Appropriate Accounting Treatment for...

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To: The Audit Files of eVade From: Date: October 25, 2017 Subject: Appropriate Accounting Treatment for eVade Executive Summary On June 15, 2017, eVade, an online retailer that operates a distribution center in Virginia, completed the necessary paperwork and other actions to participate in the tax amnesty program initiated by Virginia’s governor on March 15, 2017. 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. As of December 31, 2016, eVade has operated its distribution center in Virginia for five years and has never collected or remitted sales tax to Virginia. Financial Accounting Standards Board’s (FASB) Accounting Standards Codification (ASC) 250, Accounting Changes and Error Corrections , and ASC 450, Contingencies , specifies the appropriate accounting treatment for eVade. The following analysis includes the accounting treatment for (1) unpaid sales tax included in the financial statements for the year-ended December 31, 2016, (2) the tax amnesty program announced on March 15, 2017, and (3) the settlement made on June 15, 2017. ASC 250 and ASC 450 states that eVade (1) does not need to make any provisions for the year-ended December 31, 2016, (2) include disclosure or recognition of the liability on March 31, 2017, and (3) recognize the liability on June 31, 2017. Analysis According to the ASC 450-20-25-2, eVade considers the risk of detection as not probable. Therefore, the company does not need to make any provisions for the year-ended December 31,

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