Ethics #1 : Capitalize or Expense

Furniture.com uses automated equipment. Early in the year, Furniture.com purchased equipment at a cost of $400,000. Management expects the equipment to remain in service for 5 years, with zero residual value. Furniture.com plans on using straight-line depreciation. Mason Green is finalizing the depreciation expense calculation for the year when Furniture.com's controller, Flynn Steel, tells Mason to expense the entire cost of the equipment instead of capitalizing the equipment at the time of purchase. Flynn argues that the company won't have to worry about recording depreciation for the next 5 years - The accounting will be "just easier". What should Mason do? What would you do?

Ethics #2: How much is the warranty expense?

Henry Stevenson works as the manager of used car Superstore. His company prides itself on including a thee-year bumper to bumper warranty on all car sales - No matter how old the car is. Henry's job responsibilities include estimating the amount of the warranty on each car sale. Henry knows that the older car is, the higher the warranty cost will be to the business. Edward Wold, the owner of the store, has been criticizing Henry for the amount of warranty expense he has been recording, Edward believes that Henry is overestimating the cost of the warranty and has told Henry that he needs to cut the cost in half. What should Henry do? What would you do?

Decision #1: Which depreciation method should be selected.

Ira Glasier is the owner of Three Junes weaving. Ira has just purchased an automated weaving machine and is trying to figure out which depreciation method to use: straight-line, units-of-production, or double-declining-balance method. Ira is interested in in using a depreciation method method that approximated the usage of the weaving machine. he also expects that the weaving machine will have increasing repairs and maintenance as the assets ages. What method should Ira choose?

Decision# 2 : How should Contingencies be reported?

Emily Gallagher is the independednt auditor of Tate Manufacturer, a maker of handheld drills and other carpentry tools. Emily is evaluating current lawsuits for the company to determine whether any contingency liabilities should be disclosed. Tate Manufacturing is curretly in litigation for a fire. Tate's attorney has told Emily that it is likely that the manufacturer will lose the case, but he doe snot want to estimate the amount of damages. The attorney is concerned that estimating the amount of damages would establish a dollar amount for settlement and could place their case in jeopardy. What should Emily do? What would you do?