Question:

a)What is the difference in before-tax income between the CFO's and the controller's treatment of the situation?

b)What are relevant accounting principles/rules you have learned?

c)Do you have other options or suggestions?

d)Discuss your responsibilities along with the possible consequence of any action you might take?

You have recently been hired as the assistant controller for Horizon Corporation, a large public held computer manufacturer. Your immediate superior is the company controller, Jim Fielding, who in turn reports to the chief financial officer. At the beginning of 2011, the Horizon Company purchased equipment for $42 million to be used in the manufacture of a new line of laptop computers. The equipment was estimated to have a 10-year service life and no residual value. The straight-line depreciation method was used to measure depreciation for 2011 and 2012. Late in 2013, it became apparent that sales of the new laptop computer significantly below expectations. The company decided to continue production for two more years (2014 and 2015) and then discontinue the line. At that time, the equipment will be sold for minimal scrap values. The controller, Jim Fielding, was asked by the companys chief financial officer (CFO), to determine the appropriate treatment of the change in service life of the equipment. Jim determined that there has been an impairment of value requiring an immediate write-down of the equipment of $12,900,000. The remaining book value would then be depreciated over the equipment's revised service life. But the CFO does not like Jim's conclusion because of the effect it would have on 2013 income. Looks like a simple revision in service life from 10 years to 5 years to me." Let's go with it that wav, Jim