Susan Fields is the controller of Sunset Travel, a publicly traded company. The company is suffering from declining sales of its main product, vacation packages. The president, Jeff Gold, instructs the controller, to change estimates relating to the 10 jets they purchased for $3 million in January 2018. The planes were originally estimated to have a useful life of ten years and a residual value of $250,000. Straight-line depreciation has been recorded for the years 2018 and 2019 on that basis. Jeff wants the estimated useful life changed to a total of fifteen years and the residual value raised to $500,000.

Susan is hesitant to make the change, believing it inappropriate to manage income in this way. Jeff is under a lot of pressure from the shareholders to maximize net income. Both of them will receive a bonus which is based on net income. Jeff insists on making the change, arguing that the useful life and residual value are only an estimate anyway.

Required:

(a) Name two financial statement users in this scenario and explain the financial reporting objective for each user. (4 marks)

(b) How will the CEO's proposed change impact net income in 2020? (3 marks)

(c) Does the CEO's request pose an ethical dilemma for the controller? If so, why? (3 marks)