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Going Public

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Green Dreams
Evaluation Exercise

Answer these questions on a group basis: 1. Develop a chart similar to the evaluation handout and fill in all of the pieces for the main accounting issue: “How should Green Dreams account for the sales/use taxes?” Use the provisions of SFAC #6 and FASB #5 to reach a conclusion.

|Elements of Reasoning |
|What is the purpose (objective)? |Determine how Green Dreams should account for their sales/use taxes according to GAAP. |
|What is the issue? |How should Green Dreams account for the sales/use taxes? |
|What is the information (facts)? |Almost 100% of Green Dreams’ plant equipment is purchased outside of its home state. |
| |State law requires Green Dreams to pay use tax. |
| |Green Dreams has a company policy not to remit use tax due for out of state purchases. |
|What are the concepts (Standards)? |FAS #5 conditions met for use tax (probable liability had been incurred at the date of the financial |
| |statements and the amount of loss can be reasonably estimated) |
| |Fulfills characteristics of expenses definition |
| |Because FAS #5

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