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Evade's Pays Up Case

In: Business and Management

Submitted By Enrico20
Words 299
Pages 2
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Case 1: 14-07, eVade Pays Up
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1. As of December 31, 2011, what amount, if any, of sales taxes due should be recognized in eVade’s financial statements?

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According to ASC 450-20-25-2, 450-20-25-6, 450-20-25-7, since eVade considers the risk of detection as not probable, there is no need to make any provision as on 31st of
December, 2011. However, suitable disclosure has to be given in notes to financial statement about this loss contingency and amount of loss to be disclosed in the said notes would be
$50+ $6+ $4 = $60 million.

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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?

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In March 15, 2012 Company has decided to participate in the amnesty program.
Therefore, conforming to ASC 250-10-50-9 and ASC 250-10-50-11, eVade should recognize the amount of liability for $25 million in the financial statements on the 31st of March, 2012. the loss will be impacting 2012 financial statements and will not have retrospective impact on the 2011 financial statements.

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3. What amounts should be recognized in the financial statements for the $25 million payment on June 15, 2012?

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Regarding the ASC 606-10-55-49 and ASC 250-10-50-8, 2011 financial statements would remain unchanged and $25 million payment would be recorded as charge to the 2012 financial statements. If the amount is already recognized as a liability in March, then in June this payment would extinguish the liability and will not have any additional charge to the income statement, the journal entry made for this payment would be:

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06/15/2012 Sales Taxes Liabilities $25,000,000
Cash
$25,000,000

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