Reference no: EM13764886

Baker Container Company is suffering declining sales of its principal product. The president, Robert Schneider, instructs his controller, Kate McNee, to lengthen asset lives to reduce depreciation expense. A top of the line equipment, purchased for $4.1 million in January 2012, was originally estimated to have a useful life of 8 years and a salvage value of $300,000. Depreciation has been recorded for 2 years on that basis. Robert wants the estimated life changed to 12 years total, and the straight-line method continued. Kate is hesitant to make the change, believing it is unethical to increase net income in this manner. Robert says, "Well, the life is only an estimate, and I've heard that our competitor uses a 12-year life on their production equipment."

In 150 words or less, explain if the change in asset life is unethical, or is it simply a good business practice by an astute president.

Baker Container Company is suffering declining sales of its principal product. The president, Robert Schneider, instructs his controller, Kate McNee, to adjust up the goodwill related to a small business the company just purchased. His reasoning being that recent appraisals of similar businesses show an increase in value, justifying the adjustment. Kate decided to write a short memo to the president.

Prepare the short memo in 150 words or less, as if you were the controller, to explain the proper accounting on the write-down and write-up of goodwill to the president.