Depreciation Choice Jerry Prior, Beeler Corporations controller is concerned that net income may be lower this year.

Question:

Depreciation Choice 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 lying 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 market 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.”

Answer the following questions.

(a) Who are the stakeholders in this situation?

(b) What are the ethical issues involved?

Stakeholders
A person, group or organization that has interest or concern in an organization. Stakeholders can affect or be affected by the organization's actions, objectives and policies. Some examples of key stakeholders are creditors, directors, employees,... Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...