uired xplain to Maxie that the two companies do not have equal amoun nt to include in your discussion comments regarding the possibl , the impact of the historical cost concept on balance sheet information, ort paragraph, e equip You ma equipmen ct of different depreciation methods on book val imp arc6-5 Ethical Dilemma What's an expense? Saveral years ago, Wilson Blowhard founded a communications company. The company became suc- cesful and grew by expandi of its growth resulted from acquiring other companies. Mr. Blowhard is adamant about continuing the company's growth and increasing its net worth. To achieve these goals, the business's net income must continue to increase at a rapid pace ing its customer base and acquiring some of its competitors. In fact, most If the company's net worth continues to rise, Mr. Blowhard plans to sell the company and retire therefore, focused on improving the company's profit any way he can In the communications business, companies often use the lines of other communications compa- nies. This line usage is a significant operating expense for Mr. Blowhard's company. Generally ac cepted accounting principles require operating costs like line use to be expensed as they are incurred each year. Each dollar of line cost reduces net income by a dollar. After reviewing the company's operations, Mr. Blowhard concluded that the company did not cur rently need all of the line use it was paying for. It was really paying the owner of the lines now so that the line use would be available in the future for all of Mr. Blowhard's expected new customers. Mr. Blowhard instructed his accountant to capitalize all of the line cost charges and depreciate them over 10 years. The accountant reluctantly followed Mr. Blowhard's instructions and the company's net income for the cur rent year showed a significant increase over the prior year's net income. Mr. Blowhard had found a way to report continued growth in the co's net income and increase the value of the company Required a. How does Mr. Blowhard's scheme affeci the amount of income that the company would otherwise report in its financial statements and how does the scheme affect the company's balance sheet? Explain your answer. standards that were violated that are evident in this case. b. Review the AICPA's Articles of Professional Conduct (see Chapter 4) and comment on any of the c. Review the fraud triangle discussed in Chapter 4 and comment on the features of the fraud triangle