Herb and Henrietta Live in a Large City

question 122

Essay

Herb and Henrietta live in a large city.Herb works as a supervisor at a local factory,and Henrietta has taught Latin for many years in the local high school.Their financial situation is fairly simple.They have a savings account,a small retirement plan,and they still own the first home that they bought as newlyweds.When they bought their current home they kept the first home and have used it as rental property.Herb and Henrietta are baffled by the entire concept of income taxes.The accountant who had prepared their taxes for many years died during the last year.Not knowing where to turn,they took their taxes to one of the large international CPA firms.The CPA firm accepted the work,with the parties agreeing that the fee for the tax return preparation would be $350.Most of this CPA firm's tax clients had far more complicated tax situations than that of Herb and Henrietta.The firm had a practice of contracting out the preparation of the simplest tax returns.Discuss the propriety of the CPA firm's actions.

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Definitions:

Stockholders' Equity

The residual interest in the assets of an entity that remains after deducting its liabilities; equity represents ownership interest in a company.

Earnings Per Share

This is a measure of a company's profitability, calculated by dividing the company's net income by the number of outstanding shares of its common stock.

Common Stock

Equity securities that represent ownership interests in a corporation, entitling holders to vote on corporate matters and receive dividends.

Earnings Per Share

A financial metric calculated by dividing a company's profit by the number of its outstanding shares of common stock.