Case Scenario

Magnatron Cinemas, a large movie theater chain, spent $$28$ million for reclining seats and carpeting. The question being discussed over breakfast on Wednesday morning was the length of the depreciation period for these leasehold improvements. The company controller, Patrice Kelly, was surprised by the suggestion of Jared Percy, her new Chief Financial Officer.

Kelly: Why $25$ years? We've never depreciated these types of assets for such a long period.

Percy: I noticed that in my review of back records. But during our expansion to the Midwest, we don't need expenses to be any higher than necessary.

Kelly: But isn't that a pretty rosy estimate of these assets' actual life? Trade publications show an average depreciation period of $12$ years.

$1.$Read the case scenario provided below about Magnatron Cinemas purchase of assets and Percy's decision to depreciate them for $25$ years.$$How would increasing the depreciation period affect Magnatron Cinemas' net income?

$2.$Does revising the estimate pose an ethical dilemma? If it does, describe the dilemma. If not, why not?

$3.$Does this practice pose an ethical dilemma? If it does, describe the dilemma. If not, why not?

$4.$What position, or outside parties would be affected by this situation?

$5.$If you were Kelly, what would you say to Percy?