Lucky Owns a Maid Service That Cleans Several Local Businesses

question 31

Essay

Lucky owns a maid service that cleans several local businesses nightly. Lucky, a high tax rate taxpayer, would like to shift some income to his son Rocco. Lucky tells all of his customers (who are always timely in their payments)to pay Rocco, and then Rocco will report 50 percent of the income as a collection fee. Lucky will report the remaining 50 percent. Will this shift the income from Lucky to Rocco? Why or why not? What doctrines influence your answer? Any suggestions for Lucky?

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Definitions:

Cost Principle

Accounting principle that requires assets, services, and goods to be recorded at their original cost rather than their current market value.

Cost Principle

An accounting principle that states transactions and assets should be recorded at their original purchase cost, factoring out any market value changes.

Revaluing Assets

The process of adjusting the book value of an asset to reflect its current market value rather than its original purchase price.

Major Disadvantage

A significant or principal drawback that adversely affects the effectiveness, efficiency, or desirability of an object, system, or method.