Reference no: EM131333108

DQ1

Respond to the Ethics Discussion Case at the end of chapter 5 in the textbook.

Dan owns a successful sports bar in downtown Providence. The state is considering legislation that would restrict the sale of alcohol in restaurants and bars on Saturdays and Sundays until after 7 P.M. The association of Providence restaurant owners is thinking about hiring a lobbyist to fight the legislation. The lobbyist has told the association that the lobbying effort would cost each owner $6,000. Dan's accountant has informed him that his $6,000 contribution would not be deductible for tax purposes. Dan has told his 30 employees, most of whom are students at a local college, that if the legislation passes, he will have to lay off employees. In addition, he told them that most local restaurant owners cannot afford to pay a lobbyist $6,000 to fight the legislation, because it is not tax deductible. Ann, one of Dan's employees and an accounting major, suggests that Dan pay each employee an extra $200 in salary (30 × $200 = $6,000) and that they forward the payments to the lobbyist. That way, Ann reasons, the cost will be deductible as salary expense. Dan tells his accountant about Ann's idea, and his accountant thinks it is great. In fact, he is so impressed with the idea that he has offered Ann a job when she graduates next spring. Do you think Ann's idea is a legal way to deduct the lobbying expenses? What ethical standards has Dan's accountant violated? (Refer to the Statements on Standards for Tax Services, which can be found at www.cengagebrain.com.)

DQ2

Respond to the Ethics Discussion Case at the end of chapter 6 in the textbook.

Tom is a CPA for a large regional firm. In preparing the tax return for Espresso Industries, he notices that the firm has an unusually high amount of travel, meal, and entertainment expenses. Therefore, he decides to examine the supporting documentation. In doing so, Tom notices that the business purpose for many of the meals is not provided. When Tom questions Frank, the company controller, Frank assures him that all the meal and entertainment expenses are legitimate. After further examination, Tom finds that for every business day in June, July, and August, four of the corporation's senior officers have been reimbursed for their lunch and dinner costs. He confronts Frank and the assistant controller, Doug, with this information. He informs Frank that his firm will not prepare the return unless the meals and entertainment that do not have a business purpose are omitted.

Frank, angered by Tom's decision, tells Tom to prepare the return and that he will take it from there. The following Saturday, Tom is playing golf with Doug and asks him what Frank means by his remarks. Doug tells Tom that Frank will simply replace Tom's number with one that includes the entire meal and entertainment expense. Can Tom prepare the tax return, knowing that the company will change the meal and entertainment expense? If he does prepare the return, what ethical standards (refer to Statements on Standards for Tax Services, which can be found at www.cengagebrain.com), if any, has Tom violated? Assume that Tom prepares the return. If asked, should he prepare next year's return?