AC/113 AC113 AC 113 UNIT 9 DISCUSSION

AC 113 UNIT 9 DISCUSSION

Unit 9: Unit 9: Liabilities and Stockholders' Equity - Discussion

Unit 9 Discussion:

Accounting for debt is important in businesses. Understanding the accounting for current and long term liabilities is important in understanding the solvency of a business. In this Discussion, you will look at how businesses finance operations through debt.

This week’s Discussion focuses on Activity 8-1 located on pages 316–317 of the textbook, which reads as follows:

Jas Carillo was discussing summer employment with Maria Perez, President of Valparaiso Construction Service.

Maria: I’m glad that you’re thinking about joining us for the summer. We could certainly use the help.

Jas: Sounds good. I enjoy outdoor work, and I could use the money to help with next year’s school expenses.

Maria: I’ve got a plan that can help you out on that. As you know, I’ll pay you $4 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.

Jas: Well, that’s a bit unusual, but I guess money is money.

Maria: Yeah, not only that, it’s tax free!

Jas: What do you mean?

Maria: 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.

Why does Maria Perez want to conduct business transactions using cash (not check or credit card)?

How should Jas respond to Maria’s suggestion?