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1. Tonya Latirno is a staff accountant for Cannally and Kennedy, a local CPA firm in New York. For the past 10 years, the firm has given employees a year-end bonus equal to two weeks salary. On November 15, the firms management team announced that there would be no annual bonus this year. Because of the firms long history of giving a year-end bonus, Tonya and her coworkers had come to expect the bonus and believed that Cannally and Kennedy had breached an implicit agreement by discontinuing the bonus. As a result, Tonya decided that she would make up for the lost bonus by working an extra six hours of overtime per week for the rest of the year. Cannally and Kennedys policy is to pay overtime at 150% of straight time.Tonyas supervisor was surprised to see overtime being reported, because there is generally very little additional or unusual client service demands at the end of the calendar year. However, the overtime was not questioned, because employees are on the honor system in reporting their work hours.Is Cannally and Kennedy CPA firm obligated to pay a bonus to its employees under any circumstances?

Yes

No

2.Tonya Latirno is a staff accountant for Cannally and Kennedy, a local CPA firm in New York. For the past 10 years, the firm has given employees a year-end bonus equal to two weeks salary. On November 15, the firms management team announced that there would be no annual bonus this year. Because of the firms long history of giving a year-end bonus, Tonya and her coworkers had come to expect the bonus and believed that Cannally and Kennedy had breached an implicit agreement by discontinuing the bonus. As a result, Tonya decided that she would make up for the lost bonus by working an extra six hours of overtime per week for the rest of the year. Cannally and Kennedys policy is to pay overtime at 150% of straight time.

Tonyas supervisor was surprised to see overtime being reported, because there is generally very little additional or unusual client service demands at the end of the calendar year. However, the overtime was not questioned, because employees are on the honor system in reporting their work hours.

Is the decision to pay a bonus is discretionary?

Yes No

3.Tonya Latirno is a staff accountant for Cannally and Kennedy, a local CPA firm in New York. For the past 10 years, the firm has given employees a year-end bonus equal to two weeks salary. On November 15, the firms management team announced that there would be no annual bonus this year. Because of the firms long history of giving a year-end bonus, Tonya and her coworkers had come to expect the bonus and believed that Cannally and Kennedy had breached an implicit agreement by discontinuing the bonus. As a result, Tonya decided that she would make up for the lost bonus by working an extra six hours of overtime per week for the rest of the year. Cannally and Kennedys policy is to pay overtime at 150% of straight time.

Tonyas supervisor was surprised to see overtime being reported, because there is generally very little additional or unusual client service demands at the end of the calendar year. However, the overtime was not questioned, because employees are on the honor system in reporting their work hours.

Is Cannally and Kennedy CPA firm acting in an ethical manner by eliminating the bonus?

Yes, Cannally and Kennedy CPA firm acts in an ethical manner. No, Cannally and Kennedy CPA firm does not act in an ethical manner.

4.Tonya Latirno is a staff accountant for Cannally and Kennedy, a local CPA firm in New York. For the past 10 years, the firm has given employees a year-end bonus equal to two weeks salary. On November 15, the firms management team announced that there would be no annual bonus this year. Because of the firms long history of giving a year-end bonus, Tonya and her coworkers had come to expect the bonus and believed that Cannally and Kennedy had breached an implicit agreement by discontinuing the bonus. As a result, Tonya decided that she would make up for the lost bonus by working an extra six hours of overtime per week for the rest of the year. Cannally and Kennedys policy is to pay overtime at 150% of straight time.

Tonyas supervisor was surprised to see overtime being reported, because there is generally very little additional or unusual client service demands at the end of the calendar year. However, the overtime was not questioned, because employees are on the honor system in reporting their work hours.

Is Tonya behaving ethically by making up the bonus with unnecessary overtime?

Yes, Tonya is behaving ethically. No, Tonya is not behaving ethically.

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

Tina: Im glad youre thinking about joining us for the summer. We certainly can use the help.

Marvin: Sounds good. I enjoy outdoor work, and I could use the money to help with next years school expenses.

Tina: Ive got a plan that can help you out on that. As you know, Ill pay you $14 per hour, but in addition, Id like to pay you with cash. Since youre only working for the summer, it really doesnt 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 just to pay you that way.

Marvin: Well, thats a bit unusual, but I guess money is money.

Tina: Yeah, not only that, its tax-free!

Marvin: What do you mean?

Tina: Didnt you know? Any money that you receive in cash is not reported to the IRS on a W-2 form; therefore, the IRS doesnt know about the incomehence, its the same as tax-free earnings.

Does an employee have to report his/her salary in cash to the Internal Revenue Service?

Yes No

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

Tina: Im glad youre thinking about joining us for the summer. We certainly can use the help.

Marvin: Sounds good. I enjoy outdoor work, and I could use the money to help with next years school expenses.

Tina: Ive got a plan that can help you out on that. As you know, Ill pay you $14 per hour, but in addition, Id like to pay you with cash. Since youre only working for the summer, it really doesnt 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 just to pay you that way.

Marvin: Well, thats a bit unusual, but I guess money is money.

Tina: Yeah, not only that, its tax-free!

Marvin: What do you mean?

Tina: Didnt you know? Any money that you receive in cash is not reported to the IRS on a W-2 form; therefore, the IRS doesnt know about the incomehence, its the same as tax-free earnings.

Is Tina's choice to pay Marvin in cash without withholding salary deductions and not reporting to Internal Revenue Services Department optional?

Yes No

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

Tina: Im glad youre thinking about joining us for the summer. We certainly can use the help.

Marvin: Sounds good. I enjoy outdoor work, and I could use the money to help with next years school expenses.

Tina: Ive got a plan that can help you out on that. As you know, Ill pay you $14 per hour, but in addition, Id like to pay you with cash. Since youre only working for the summer, it really doesnt 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 just to pay you that way.

Marvin: Well, thats a bit unusual, but I guess money is money.

Tina: Yeah, not only that, its tax-free!

Marvin: What do you mean?

Tina: Didnt you know? Any money that you receive in cash is not reported to the IRS on a W-2 form; therefore, the IRS doesnt know about the incomehence, its the same as tax-free earnings.

Should Marvin accept Tina's offer of cash pay to avoid taxes during his summer job?

Yes No

8.

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

Tina: Im glad youre thinking about joining us for the summer. We certainly can use the help.

Marvin: Sounds good. I enjoy outdoor work, and I could use the money to help with next years school expenses.

Tina: Ive got a plan that can help you out on that. As you know, Ill pay you $14 per hour, but in addition, Id like to pay you with cash. Since youre only working for the summer, it really doesnt 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 just to pay you that way.

Marvin: Well, thats a bit unusual, but I guess money is money.

Tina: Yeah, not only that, its tax-free!

Marvin: What do you mean?

Tina: Didnt you know? Any money that you receive in cash is not reported to the IRS on a W-2 form; therefore, the IRS doesnt know about the incomehence, its the same as tax-free earnings.

Is Tina acting in an ethical manner by offering tax-free earnings?

Yes, Tina is acting in an ethical manner. No, Tina is not acting in an ethical manner.