Evade Company

In: Business and Management

Submitted By indoboi350
Words 1137
Pages 5
Akhmad Yusuf
ACCT 351
Research Case 1

1. As of December 31, 2011, what amount, if any, of sales due should be recognized in eVade’s financial statements?

According to FASB ASC 450-20-25-2, in order to recognized a loss contingency, two of the following conditions have to be met; information available before the financial statements are issued or are available to be issued indicates that it is probable that an asset had been impaired or a liability had been incurred at the date of the financial statements and the amount of loss can reasonably be estimated. Since eVade considers the risk of detection to not be probable, there is no need to make any provision as of December 31, 2011. However, a suitable disclosure has to be made in notes to financial statement about this loss contingency with an estimated amount of $60 million dollars (Sales tax payable $50 million, interest $6 million, and penalties $ 4million).

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?

As of March 15, 2012, eVade company has decided to participate in the tax amnesty program. Therefore conforming to FASB ASC 250-10-50-8 and ASC 250-10-50-9, eVade company should recognize the amount of liability of $25 million dollars in the financial statement on March 31, 2012. This loss however, will not have impact on the 2011 financial statement.

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

Regarding to FASB ASC 250-10-50-8 and ASC 606- 10-55-49, the $25 million dollars payment will be recorded in the 2012 financial statement. As for the 2011 financial statement, it will remain unchanged. The amount was recognized in March of the same year as eVade company made the payment in June (2012). The journal entry as of June 15, 2012…...

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