Charlie Brown, controller for Kelly Corporation, is preparing the companys income statement at year-end. He notes that the company lost a considerable sum on the sale of some equipment it had decided to replace. Since the company has sold equipment routinely in the past, Brown knows the losses cannot be reported as an unusual item. He also does not want to highlight it as a material loss since he feels that will reflect poorly on him and the company. He reasons that if the company had recorded more depreciation during the assets lives, the losses would not be so great. Since depreciation is included among the companys operating expenses, he wants to report the losses along with the companys expenses, where he hopes it will not be noticed.

Instructions

(a) What are the ethical issues involved?

(b) What should Brown do?

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