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Can you list the possible positive and negative consequences of this outcome? Ethics Case 11-5 Asset impairment 1 LO11-8 At the beginning of 2022, the
Can you list the possible positive and negative consequences of this outcome? Ethics Case 11-5 Asset impairment 1 LO11-8 At the beginning of 2022, the Healthy Life Food Company purchased equipment for $42 million to be used in the manufacture of a new line of gourmet frozen foods. The equipment was estimated to have a 10 -year service life and no residual value. The straight-line depreciation method was used to measure depreciation for 2022 and 2023. Late in 2024, it became apparent that sales of the new frozen food line were significantly below expectations. The company decided to continue production for two more years ( 2025 and 2026 ) and then discontinue the line. At that time, the equipment will be sold for minimal scrap values. The (head accountant) controller was asked by the company's chief executive officer (CEO) to determine the appropriate treatment of the change in service life of the equipment. The controller determined that there has been an impairment of value requiring an immediate writedown of the equipment of $12,900,000. The remaining book value would then be depreciated over the equipment's revised service life. The CEO does not like this conclusion because of the effect it would have on 2024 income. "Looks like a simple revision in service life from 10 years to 5 years to me," the CEO concluded. "Let's go with it that way." Required: 1. What is the difference in beforetax income between the CEO's and the controller's treatment of the situation? 2. Is GAAP more likely to require the controller's approach of impairment or the CEO's approach of change in estimate
Can you list the possible positive and negative consequences of this outcome?
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