Flo Choi owns a small business and manages its accounting. Her company just finished a year in which a large amount of borrowed funds was invested in a new building addition as well as in equipment and fixtures additions. Choi's banker requires her to submit semiannual financial statements so he can monitor the health of the business. She has been warned that if her profit margins erode, he might raise the interest rate to reflect the increased loan risk from the bank's point of view. She knows profit margin is likely to decline this year. As she prepares year-end adjusting entries, she decides to apply the following depreciation rule: All asset additions are considered to be in use on the first day of the following month after purchase. The previous rule assumed assets were in use on day one of the month purchased.

1. Identify decisions that managers like Choi must make in applying depreciation methods.

2. Is this new depreciation rule an ethical violation, or, is it a legitimate decision for computing depreciation?

3. How will this new depreciation rule affect Choi's profit margin for her business?