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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, I’ll 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 in 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. a. Why does Tina Song want to conduct business transactions using cash (not check or credit card)? b. How should Marvin respond to Tina’s suggestion?

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Financial Accounting

15th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337272124

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BuyFindarrow_forward

Financial Accounting

15th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337272124
Chapter 11, Problem 2CP
Textbook Problem
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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, I’ll 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 in 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. Chapter 11, Problem 2CP, Ethics in Action Marvin Turner was discussing summer employment with Tina Song, president of Motown , example  1Why does Tina Song want to conduct business transactions using cash (not check or credit card)?
  2. b. Chapter 11, Problem 2CP, Ethics in Action Marvin Turner was discussing summer employment with Tina Song, president of Motown , example  2How should Marvin respond to Tina’s suggestion?

a.

To determine

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

Explanation of Solution

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.

The business transactions made through checks or credit cards passes through regular audit process and thus, the taxable income is clearly known...

b.

To determine

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

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Chapter 11 Solutions

Financial Accounting
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