Exercise 9-3 [Managerial] Your client, Janice Rush, is the owner/manager of a store that sells jewelry, fine china, sterling silver flatware, and other gifts. The store has 10 employees, mostly sales personnel who advise customers and handle the sales transactions. Ms. Rush is an astute business person, but she has little training in business and has asked for your help as she has noticed discrepancies in the amount of inventory she believes should be on hand and the amount of inventory actually on hand based on the physical inventory taken. After talking with Ms. Rush, you realize that she needs a better system of internal control over inventory. Write letter to Ms. Rush in which you explain the concept of internal control and outline a system of internal control over inventory that she can put in place.

Exercise 9-6 [Tax]

Assume you are a CPA specializing in tax accounting for individuals in your community. One of your clients, Alicia Evans, has sent you the following email.

As you know, I have recently returned to work full time and need to hire someone to help me with house cleaning. I need to know what, if any, obligations I will have for withholding social security. Will I have any other tax or reporting obligations? I am considering the following possibilities:

1. Hiring an individual who has a business license and is self-employed as a contractor. This person would clean my house weekly. In return, I would pay this person $100 a week for 50 weeks of the year.

2. Using a cleaning service, who would send one of its employees to my home. I would use this service bi- weekly at $125 per visit, for a total of 26 visits per year.

3. Hiring my neighbor who does not have a business license. She would clean my house biweekly, and I would pay her $75 each visit, for a total of 26 visits each year.

I have one more question. Can I deduct any of the above expenses for house cleaning from my own income tax? After all, if I were not working I would not need to hire someone else to clean my house. It seems to me the house cleaning should be a legitimate business expense.

Please send the answer to the above questions to my home by registered mail. You have my address on file.