Link Back to Chapter 7. ComDigital, Inc., designs and manufactures chips used in digital cell phones. ComDigital is currently developing the next generation of computer chips that will allow users to receive e-mail and surf the Net using voice commands over a cell phone. Because of competition to be the first to perfect the new chip. ComDigital is investing heav- ily in development. Work is going slowly, and revenue growth from older chips is starting to drop. With year-end approaching. ComDigital's CEO, Jim Mann. calls a meeting with Joan Peters. Vice-President of Marketing. Tammy Myers, Vice-President of Finance, and Larry Case, Controller. Larry Case asks that as assistant controller, you also attend the meeting. The CEO starts the meeting by expressing concern that with the slowdown in revenue growth and the heavy investment in new chip development, ComDigital may not meet finan- cial analysts' earnings predictions this year. The conversation eventually turns to the new chip. Mann says the company cannot slow its R&D efforts but, since the new chip will be so profitable when it goes into production, some of the costs should be capitalized now, and then expensed later when the chip is generating revenue. VP of Finance Tammy Myers then sug- gests capitalizing some of these costs and charging them against revenues of chips currently being produced and sold. She argues that the new chip's R&D efforts must be providing some Insights for improving the production process for existing chips. You are surprised by Controller Larry Case's silence during this discussion, as you believe these are R&D costs that GAAP requires to be expensed as incurred. The meeting ends without resolution. Later, you learn that the CEO has told your boss to capitalize a large amount of this year's development costs for the new chip. Before talking to anyone, you decide to work through this ethical dilemma, using the following framework from Chapter 7. 1. List the facts. 2. Identify the ethical issues. 3. Specify the alternatives. 4. Identify the people involved. 5. Assess the possible consequences. 6. Make a decision. Complete the framework.