Chapter 6, Problem 95EDC

A new client has just contacted you to prepare their business tax return for the current year. He just opened his small landscaping business during the current fiscal year. The client owns equipment, travels from one place to another, has 3 employees and 20 landscaping clients. The owner does not keep records and has no accounting experience. He discusses how he would handle this situation taking into account any ethical and professional considerations.

You work as a tax consultant at a consultancy firm. One of your new clients has a food and beverage establishment. The establishment has increased its scale of operations recently and the number of employees of the establishment has been increased to 20. Tipping the employees is customary in the establishment. Currently, the establishment does not report any tip income in its employees’ Form W-2 and it wants to continue the same tradition.   Help the owner of the establishment to understand the need to report the tip income and the applicability of FICA taxes on the tip income.

Tom’s Tax Services is a small accounting firm that offers tax services to small businesses and individuals. A local store owner has approached Tom about doing his taxes but is concerned about the fees Tom normally charges. The costs and revenues at Tom’s Tax Services follow

Colleen Fernandez, president of Rhino Enterprises, applied for a $175,000 loan from First Federal Bank. The bank requested financial statements from Rhino Enterprises as a basis for granting the loan. Coleen has told her accountant to provide the bank with just the balance sheet. Colleen has decided to omit the other financial statements because there was a net loss during the past year. The accountant, Jim Long, only sent over the balance sheet to First Federal Bank Did Jim act ethically or unethically? Why?

You have been engaged to review the financial statements of Crane Corporation. In the course of your examination, you conclude that the bookkeeper hired during the current year is not doing a good job. You notice a number of irregularities as follows. 1.   Year-end wages payable of $3,100 were not recorded because the bookkeeper thought that “they were immaterial.” 2.   Accrued vacation pay for the year of $30,300 was not recorded because the bookkeeper “never heard that you had to do it.” 3.   Insurance for a 12-month period purchased on November 1 of this year was charged to insurance expense in the amount of $2,424 because “the amount of the check is about the same every year.” 4.   Reported sales revenue for the year is $2,301,260. This includes all sales taxes collected for the year. The sales tax rate is 6%. Because the sales tax is forwarded to the state’s Department of Revenue, the Sales Tax Expense account is debited. The bookkeeper thought that “the sales tax is a…

On Thursday, Justin flies from Baltimore (where his sole proprietorship office is located) to Cadiz (Spain). He conducts business on Friday and Tuesday; vacations on Saturday, Sunday, and Monday (a legal holiday in Spain); and returns to Baltimore on Thursday. Justin was scheduled to return home on Wednesday, but all flights were canceled due to bad weather. As a result, he spent Wednesday watching floor shows at a local casino. a. For tax purposes, what portion of Justins trip is regarded as being for business? b. Suppose Monday was not a legal holiday. Would this change your answer to part (a)? Explain. c. Under either part (a) or (b), how much of Justins airfare qualifies as a deductible business expense?

You have been engaged to review the financial statements of Gottschalk Corporation. In the course of your examination, you conclude that the bookkeeper hired during the current year is not doing a good job. You notice a number of irregularities as follows. 1. Year-end wages payable of $3,400 were not recorded because the bookkeeper thought that “they were immaterial.” 2. Accrued vacation pay for the year of $31,100 was not recorded because the bookkeeper “never heard that you had to do it.” 3. Insurance for a 12-month period purchased on November 1 of this year was charged to insurance expense in the amount of $2,640 because “the amount of the check is about the same every year.” 4. Reported sales revenue for the year is $2,120,000. This includes all sales taxes collected for the year. The sales tax rate is 6%. Because the sales tax is forwarded to the state's Department of Revenue, the Sales Tax Expense account is debited. The bookkeeper thought that “the sales tax is a selling…

Susan Small, CPA has Medium Corporation as an audit client. Medium has asked Small to create and install a new computerized payroll system. Because Small does not have the appropriate level of expertise, she referred Medium to Compusystems, Inc., a local software consulting company. Small has an arrangement where she is paid ten percent of any fee received by Compusystems from her referrals. Small has disclosed this to her client. Required: The situation above involves a possible violation of the AICPA's Code of Professional Conduct. State the rule in question and explain why or why not there is a violation of the code. You need not refer to the rule number, but should clearly describe the rule in question.

Determine whether or not the following benefits are fringe benefits. Provide your reasoning with any relevant reference(s). a) Mobile phone and a laptop provided to a tax manager of an accounting firm who takes them home over the weekends. b) A company provides a car to the managing director for both business and private uses. As the managing director's licence has suspended for 4 months, the company provides the services of a chauffeur to the managing director and subsequently invoiced for $10,000. c) An employer provides biscuits and a fruit platter for the employees to consume on a working day and on the business premises. d) An employer takes out 10 management staff to a restaurant for meal and alcohol to celebrate the end of a successful year, which costed $2,000 in total (or $200 per employee). There was no other non-cash benefit provided to the management staff during the FBT year.