controller, is concerned that net income may be lower this year. He is afraid upper-level management might recommend cost reductions by laying off accounting staff including him. Prior knows that depreciation is a major expense for Beeler. The company currently uses the double-declining-balance method for both financial reporting and tax purposes, and he’s thinking of selling equipment that, given its age, is primarily used when there are periodic spikes in demand. The equipment has
controller, is concerned that net income may be lower this year. He is afraid upper-level management might recommend cost reductions by laying off accounting staff including him. Prior knows that depreciation is a major expense for Beeler. The company currently uses the double-declining-balance method for both financial reporting and tax purposes, and he’s thinking of selling equipment that, given its age, is primarily used when there are periodic spikes in demand. The equipment has
Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Chapter11: Depreciation, Depletion, Impairment, And Disposal
Section: Chapter Questions
Problem 5C: The following two statements concern depreciation: 1. Because our plant was shut down for part of...
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Question
II. Jerry Prior, Beeler Corporation’s controller,
is concerned that net income may be lower this year. He is afraid upper-level management
might recommend cost reductions by laying off accounting staff including him.
Prior knows that depreciation is a major expense for Beeler. The company currently uses the
double-declining-balance method for both financial reporting and tax purposes, and he’s thinking
of selling equipment that, given its age, is primarily used when there are periodic spikes in demand.
The equipment has a carrying value of $2,000,000 and a fair value of $2,180,000. The gain on the sale
would be reported in the income statement. He doesn’t want to highlight this method of increasing
income. He thinks, “Why don’t I increase the estimated useful lives and the salvage values? That will
decrease depreciation expense and require less extensive disclosure, since the changes are accounted
for prospectively. I may be able to save my job and those of my staff.”
Instructions
Answer the following questions.
a. Who are the stakeholders in this situation?
b. What are the ethical issues involved?
c. What should Prior do?
12
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