DQ1
Respond to the Ethics Discussion Case at the end of chapter 9 in the textbook.
Assume you are a CPA. A new client, Mark, a local chiropractor, has brought you the financial information for his business at the close of the past year. Previously, Mark prepared his own tax returns and had them reviewed by Blacke & Co. You find the information to be organized and fairly straightforward. Mark does bring one recent transaction to your attention. He sold an x-ray machine for $10,000 near the end of the past year. The machine cost $25,000 three years earlier. Mark did not deduct depreciation expense in the year of acquisition. His business incurred an operating loss that year. Therefore, Mark "saved" some of his basis and did not report a loss as big as he could have. For the following year and for this year, Mark recorded depreciation of $5,000 annually. He tells you that he would like to "reclaim" the depreciation he did not deduct in the year of acquisition. He insists there will not be a problem because he could have taken the depreciation 3 years ago.
Also, by applying it to the adjusted basis for the sales transaction, he will not report a loss. So the recognized loss will not be used to offset other income. Advise Mark on the propriety of this transaction. You may wish to consult the Statements on Standards for Tax Services (which can be found at www.cengagebrain.com). Write Mark a letter explaining his situation.
DQ2
Respond to the Ethics Discussion Case at the end of chapter 10 in the textbook.
Steem Advertising Corporation acquires 100 laptop computers in 2012 for its account executives to use. Steem pays $300,000 for the computers and bundled software. You are the newly hired CPA and you expect to advise Steem on tax issues regarding tax years 2013 and 2014. Upon examining the firm's records for 2012, you find that each computer was expensed and deducted in 2012. Later, when examining one of the computers, you notice it has several games loaded on the hard drive. Also, you find several items of personal correspondence saved in a subdirectory of the word-processing software package.
a. What should you do? What are your obligations under the Statements on Standards for Tax Services (found at www.cengagebrain.com)?
b. Write a memorandum to your supervisor in the CPA firm explaining your observations and suggestions.