Question
please let me know if I answered these questions correctly and explain why Im correct. And if Im wrong please tell me how to improve
please let me know if I answered these questions correctly and explain why Im correct. And if Im wrong please tell me how to improve my answers. Thank you
Fresh Air Anti-Pollution Company is suffering declining sales of its principal product, no biodegradable plastic cartons. The president, Tyler Weber, instructs his controller, Robin Cain, to lengthen asset lives to reduce depreciation expense. A processing line of automated plastic extruding equipment, purchased for $3.5 million in January 2014, was originally estimated to have a useful life of 8 years and a salvage value of $400,000. Depreciation has been recorded for 2 years on that basis. Tyler wants the estimated life changed to 12 years total and the straight-line method continued. Robin is hesitant to make the change, believing it is unethical to increase net income in this manner. Tyler says, Hey, the life is only an estimate, and Ive heard that our competition uses a 12-year life on their production equipment.
Who are the stakeholders in this situation?
A. The stakeholders are anyone who relies on the Fresh-Air Pollution Companies figures including: stockholders, potential investors, and company managers.
Is the proposed change in asset life unethical, or is it simply a good business practice by an astute president?
B. The practice is unethical. Since sales of their principal product are declining, it is likely that the life of the equipment will become less not more, because sales of the product it is producing is likely to continue to decline. I also think it is unethical of the president to give accounting directives to the controller. The controller should be handling financial reporting independently without input from the president according to GAAP.
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