It Further itrangtry TIF 9-1 Ethics in Action Hard Bodies Co. is a fitness chain that has just completed its second year of operations- At thes beginning of its first fiscal year the company purchased fitness equipment. at a cost of $600.000 and estimated that the equipment would have a useful life of five years and ho residual value The company uses the straight-line depreciation method. The company reported net incon for the first two years of operations as follows Year Net Income (Loss) $50,000 2 (2,000) Mike Gambit, the company's chiet financial officer (Cro) has recently run financiab models t pr next three years James Steed the president of Hard Bodies, is concernied about these predice tions, as he is under pressure from the company's owner to return the company to Year 1 net income levels. If the company does not meet these goals, both he and Mike will likely be fired Mike suggests that the company change the estimated useful life of the fitness equipment to 10 years and increase the equipment's estimated residual value to $50,000. This will reduce depreciation expense and increase net income 1 Evaluate the decision to change the equipment's estimated useful life and estimated residual value to improve earnings. How does this change impact the usefulness of the company's net income for external decision makers? If Mike and James make the change, are they acting in an ethical manner? Explain. It Further itrangtry TIF 9-1 Ethics in Action Hard Bodies Co. is a fitness chain that has just completed its second year of operations- At thes beginning of its first fiscal year the company purchased fitness equipment. at a cost of $600.000 and estimated that the equipment would have a useful life of five years and ho residual value The company uses the straight-line depreciation method. The company reported net incon for the first two years of operations as follows Year Net Income (Loss) $50,000 2 (2,000) Mike Gambit, the company's chiet financial officer (Cro) has recently run financiab models t pr next three years James Steed the president of Hard Bodies, is concernied about these predice tions, as he is under pressure from the company's owner to return the company to Year 1 net income levels. If the company does not meet these goals, both he and Mike will likely be fired Mike suggests that the company change the estimated useful life of the fitness equipment to 10 years and increase the equipment's estimated residual value to $50,000. This will reduce depreciation expense and increase net income 1 Evaluate the decision to change the equipment's estimated useful life and estimated residual value to improve earnings. How does this change impact the usefulness of the company's net income for external decision makers? If Mike and James make the change, are they acting in an ethical manner? Explain
