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

Tina: I’m glad that you’re thinking about joining us for the summer. We could certainly 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 to just 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)?

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

Tina: I’m glad that you’re thinking about joining us for the summer. We could certainly 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 to just 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)?

To demonstrate the difference between cash account activity and accrual basis profits (net income), note the amount each transaction affects cash and the amount each transaction affects net income.

A. paid balance due for accounts payable $6,900

Metro Parking, which operates a seven-story parking building, has a calendar year-end. It serves daily and hourly parkers, as well as monthly parkers who pay a revenues when received. Most monthly parkers pay in full during the month prior to that in which they have the right to park. The company’s auditors have said that beginning in 2014, the company should consider recording the cash receipts from monthly parking on an accrual basis, crediting Unearned Revenues. Total cash receipts for 2014 were $1,250,000, and the cash receipts received in 2014 and applicable to January 2015 were$62,500. Discuss the relevance of the accounting concepts of consistency, full disclosure, and materiality to the decision to record the monthly parking revenues on an accrual basis.

On the basis of the details of the following fixed asset account, indicate the items to be reported on the statement of cash flows:

$$\begin{array}{cc} \textbf{ACCOUNT Land}&\textbf{ACCOUNT No.} \end{array}$$

To demonstrate the difference between cash account activity and accrual basis profits (net income), note the amount each transaction affects cash and the amount each transaction affects net income.

D. paid note payment to bank (principal only) $1,200

On January 2, 2015, Ditto Clothing Consignments purchased showroom fixtures for $12,000 cash, expecting the fixtures to remain in service for five years. Ditto has depreciated the fixtures on a.double-declining-balance basis, with zero residual value. On October 31, 2016, Ditto sold the fixtures for$5,900 cash. Record both depreciation expense for 2016 and sale of the fixtures on October 31, 2016.

On the basis of the details of the following fixed asset account, indicate the items to be reported on the statement of cash flows:

ACCOUNT Land

Gloria Seuss was discussing summer employment with Ella Kitt, president of Hotel California Construction Service:

Ella: I’m glad that you’re thinking about joining us for the summer. We could certainly use the help. Gloria: Sounds good. I enjoy outdoor work, and I could use the money to help with next year’s school expenses. Ella: 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 to just pay you that way. Gloria: Well, that’s a bit unusual, but I guess money is money. Ella: Yeah, not only that, it’s tax-free! Gloria: What do you mean? Ella: 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 Ella Kitt want to conduct business transactions using cash (not check or credit card)?

To demonstrate the difference between cash account activity and accrual basis profits (net income), note the amount each transaction affects cash and the amount each transaction affects net income.

D. collected legal service fees from clients for current month $3,700

To demonstrate the difference between cash account activity and accrual basis profits (net income), note the amount each transaction affects cash and the amount each transaction affects net income.

E. issued stock in exchange for a note payable $10,000

A new drill press was purchased for $\$ 95,000$ by trading in a similar machine that had a book value of $\$ 25,000$. Assuming that the trade-in allowance was $\$ 20.000$ and that $\$ 75,000$ cash was paid for the new asset, what is the cost basis of the new asset for depreciation purposes?

To demonstrate the difference between cash account activity and accrual basis profits (net income), note the amount each transaction affects cash and the amount each transaction affects net income.

C. paid employee salaries; assume it was current day’s expenses $950

Gloria Seuss was discussing summer employment with Ella Kitt, president of Hotel California Construction Service:

Ella: I’m glad that you’re thinking about joining us for the summer. We could certainly use the help. Gloria: Sounds good. I enjoy outdoor work, and I could use the money to help with next year’s school expenses. Ella: 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 to just pay you that way. Gloria: Well, that’s a bit unusual, but I guess money is money. Ella: Yeah, not only that, it’s tax-free! Gloria: What do you mean? Ella: 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.

b. How should Gloria respond to Ella’s suggestion?