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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Ethics in Action

Marvin Turner was discussing summer employment with Tina Song, president of Motown Construction Service:

Tina: I’m glad you're thinking about joining us for the summer. We certainly can use the help.

Marvin: Sounds good. I enjoy outdoor work, and I could use the money to help with next year's school expenses. Tina. I've got a plan that can help you out on that. As you know, 111 pay you $14 per hour, but in addition, I’d like to pay you with cash. Since you're only working for the summer, it really doesn't make sense for me to go to the trouble of formally putting you on our payroll system. In fact I do some jobs for my clients on a strictly cash basis, so it would be easy just to pay you that way.

Marvin: Well, that's a bit unusual but I guess money is money.

Tina: Yeah, not only that it's tax-free!

Marvin: What do you mean!

Tina: Didn't you know? Any money that you receive m cash is not reported to the IRS on a W-2 form, therefore, the IRS doesn't know about the income—hence, it's the same as tax-free earnings.

  1. a. Why does Tina Song want to conduct business transactions using cash (not check or credit card)?
  2. b. How should Marvin respond to Tina's suggestion?

a.

To determine

Ethics Case

Ms. T is the president of M Construction Service. Mr. M wants a summer employment from M Construction Service. The company wants to pay the salary to Mr. M in cash not through payroll system as it is tax free. This is because, the money that is received in cash is not reported to the Internal Revenue Service on W-2 form and hence, not included in the taxable income of the taxpayer.

To explain: the reason of Ms. T wishing to conduct business transactions using cash not through check or credit card.

Explanation

The business transactions made through checks or credit cards passes through regular audit process and thus, the taxable income is clearly known. However, the business transactions that are made through cash can be easily hidden from the IRS’s inspection by not maintain any records...

b.

To determine

To explain: the response that should be given by Mr. M to Ms. T’s suggestion.

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