FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
6th Edition
ISBN: 9781618533111
Author: DYCKMAN
Publisher: Cambridge Business Publishers
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Chapter 1, Problem 50CP

a.

To determine

Discuss the reason behind a CPA being independent when providing audit services.

b.

To determine

Identify the activities or relationships of Person J which impair his independence.

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Josh is an employee of a large Accounting firm in the city earning $120,000 peryear. On weekends, to earn extra income, she established a small businessselling Pokemon soft toys at the local market. In the first year of operating herbusiness, she earned $8,000 revenue and incurred expenses of $10,000. Can heoffset this loss against her salary income of $120,00? Would your answers will bedifferent if Joss has been doing business this year for the past 5 years and the itwas profitable on the first 3 years.
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Heather and Dan Holt met while both were employed in the interior trim and upholstery department of an auto manufacturer. After their marriage, they decided to earnsomeextra income by doing small jobs involving canvas, vinyl, and upholstered products. Their work was considered excellent, and at the urging of their customers, they decided to go into business for themselves, operating out of the basement of the house they owned. To do this, they invested $120,000 cash in their business. They spent $10,500 for a sewing machine (expected life 10 years) and $12,000 for other miscelianeous tools and equipment (expected life 5 years). They undertook only custom work, with the customers purchasing the required materials, to avoid stocking any inventory other than supplies. Generally, they required an advance deposit on all jobs. The business seemed successful from the start, as the Holts received orders from many customers. But they felt something was wrong. They worked hard and charged…
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