writing assignment

Acct 332

Spring 2021

Amalgamated Products, Inc.

Case Writing and ASC Citation Assignment

Amalgamated Products Incorporated, an Illinois corporation, produces kitchen utensils

and uses the internet to promote and sell products to customers. Products are ordered online

and delivered directly to customers located in all 50 states. Amalgamated does not have retail

stores for display and sales of products to customers, but does operate distribution centers in

various states across the country, including Virginia. Consistent with its practice in all 50

states, Amalgamated does not collect or remit sales tax to Virginia.

In recent court rulings, the state of Virginia has taken the position that any company

operating a distribution center within a state constitutes nexus and this would require that

company to collect and remit sales tax on all sales within that state.

As of December 31, 2020, Amalgamated has operated its distribution center in

Virginia for five years and has never collected or remitted sales tax to Virginia. Although the

company considers the risk of detection as not probable, Amalgamated has reasonably

estimated the total amount of sales tax payable to the state for the past five years to be $60

million plus $6 million in interest and $4 million in penalties.

On March 15, 2021, the Governor of Virginia established a tax amnesty program.

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. Amalgamated management decides to take

advantage of this program.

On June 15, 2021, Amalgamated completes the necessary paperwork and other

actions to participate in the program and pays Virginia $30 million to settle its obligation

through December 31, 2020.

Required:

As a staff accountant for a regional CPA firm, you are working on the audit of Amalgamated

Products, Inc. financial statements. You have been asked by the audit partner to write a

memo on the appropriate accounting treatment for Virginia sales tax.

Your analysis should include (1) the accounting treatment for the unpaid sales tax included in

the financial statements for the year-ended December 31, 2020 (assume the 2020 financial

statements were issued on February 28, 2021), (2) the accounting treatment for the

company’s decision to participate in the tax amnesty program announced on March 15, 2021,

and (3) the accounting treatment for the $30 million payment made on June 15, 2021.

When discussing any of the accounting treatments, you should reference, by citation, the

appropriate FASB ASC guidance which dictates the treatment (see case instructions).

Journal-form entries may be included to assist with your description of the appropriate

treatment.