please let me know if I answered these questions correctly and explain why I’m c
ID: 2454545 • Letter: P
Question
please let me know if I answered these questions correctly and explain why I’m correct. And if I’m 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 I’ve heard that our competition uses a 12-year life on their production equipment.”
Who are the stakeholders in this situation?
A) the stakeholder in this situation is primarily Robin Cain, yes the president made the suggestion to change the estimated life change but Robin Cain, the controller is the one who ultimately would change it and therefor he is at risk of producing false information. however from a broader spectrum Tyler Weber -President, Fresh Air Anti-Pollution Company, Robin Cain the stockholders of the company, and anyone who is looking to invest in the company.
Is the proposed change in asset life unethical, or is it simply a good business practice by an astute president?
B) the proposed change in assest life is both good business practice by an astute president, if he was doing it out of true estimations, however he clearly stated to the controller, that " “Hey, the life is only an estimate, and I’ve heard that our competition uses a 12-year life on their production equipment.” therefore he is doing it inspite of getting the upperhand on his competition and increase his declining sales.
Explanation / Answer
Ans)
As per the accounting standard, If there is proper justification then we can make the change in the life of the asset for valuation but in this situation there is no proper justification for change it is only for sake of increasing the profit and show incorrect amount of the profit.
It is really unethical; if the Robin makes the change in the process then he would be punishable with the impressments and fine amount so better to not make any change.
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