Jerry Prior, Beeler Corporation\'s controller is concerned that net income may b

Question

Jerry Prior, Beeler Corporation's controller is concerned that net income may be lower this year. He is afraid upper?level management might recommend cost reductions by laying off accounting staff, including him. Prior knows that depreciation is a major expense for Beeler. The company currently uses the double?declining?balance method for both financial reporting and tax purposes, and he's thinking of selling equipment that, given its age, is primarily used when there are periodic spikes in demand. The equipment has a carrying value of $2,000,000 and a fair value of $2,180,000. The gain on the sale would be reported in the income statement. He doesn't want to highlight this method of increasing income. He thinks,

Explanation / Answer

a. The stakeholders are the staff and Prior himself. b. Using the value of the of money generated due to selling the equipment that, given its age, is primarily used when there are periodic spikes in demand and showing the gain on the sale would be reported in the income statement is the ETHICAL ISSUE INVOLVED HERE. c. He should increase the estimated useful lives and the salvage values that will decrease depreciation expense and require less extensive disclosure, since the changes are accounted for prospectively. Doing so he may be able to save his job and those of his staff.

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