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Case 14-07

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Submitted By kimsuka93
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Kimberly Culcay
April 16, 2015

Case 14-07 eVade Pays Up

Required: 1. As of December 31, 2011, what amount, if any, of sales taxes due should be recognized in eVade’s financial statements? a. The journal entry that should made is:
December 31, 2011(record estimates as)
Retained Earnings 48,000
Sales Tax Expense 12,000 Estimated Tax Liabilities 60,000

-The recommendation that should be made is to charge 60 million to the estimated tax liabilities; 48,000 to retained earnings and 12,000 to sales tax expense. The 48,000 that is made to the retained earnings is because it must be adjusted retrospectively. In order to be adjusted retrospesctively the 60,000 is divided by the five years and since four years have passed then the adjustment would be made to retained earnings for 48,000.

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? b. Since the confirmation of the program was not made until June 15, 2012, then in March 31, 2012 the company does not record anything because it is a contingency the settlement has not happened yet. On March 31, 2012 there is an agreement that a settlement will happen but an agreement is not enough evidence to record anything, then the settlement will only be recorded when it actually happened. 3. What amounts should be recognized in the financial statements for the $25 million payment on June 15, 2012? c. The journal entry that must be made on June 15, 2012 is:
Liability 35,000 Gain on Amnesty 35,000

-The journal entry is made to reduce the overstatement 60,000-25,000, it is a reverse

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