Question 1

a) Carmen has computed that her average tax rate is 16% and her marginal tax rate is 25% for the current year. She is considering whether to make a charitable contribution to her church before the end of the tax year. Which tax rate is of greater significance in measuring the tax effect for her decision? Explain.

b) Limited liability companies (LLCs) are very popular today as a form of organization. Assume a client asks you to explain what this type of organization is all about. Prepare a brief description of the federal income tax aspects of LLCs.

Question 2

The auditor's report states in part, "...in conformity with generally accepted accounting principles".

Required:

a) Explain the meaning of the term "accounting principles" as used in the audit report.

b) How is it determined if an accounting principle is "generally accepted". Discuss the sources of evidence for determining whether an accounting principle has substantial authoritative support. Do not merely list the titles of publications.