The yummy food company purchased equipmen

Assignment Help Accounting Basics

Reference no: EM13693956

At the beginning of 2012, the Yummy Food Company purchased equipment for $42 million to be used in the manufacture of a new line of gourmet frozen foods. The equipment was estimated to have a 10-year service life and no residual value. The straight-line depreciation method was used to measure depreciation for 2012 and 2013.
Late in 2014, it became apparent that sales of the new frozen food line were significantly below expectations. The company decided to continue production for two more years (2015 and 2016) and then discontinue the line. At that time, the equipment will be sold for minimal scrap values.
The controller, Ben Miller, was asked by Jack Wilson, the company's CEO, to determine the appropriate treatment of the change in service life of the equipment. Heather determined that there has been an impairment of value requiring an immediate write-down of the equipment of $12,900,000. The remaining book value would then be depreciated over the equipment's revised service life.
The CEO does not like Ben's conclusion because of the effect it would have on 2014 income. "Looks like a simple revision in service life from 10 years to 5 years to me," Jack concluded. "Let's go with it that way, Ben."
Required:
1. What is the difference in before-tax income between the CEO's and the controller's treatment of the situation?
2. Discuss the Controller's ethical dilemma. For example, what ethical dilemma does he face? Who may benefit from the CEO's action? Who may be harmed from the CEO's action? How are they likely to benefit or be harmed? What specific interests are in conflict? What are your options in dealing with the ethical dilemma you identified?

Reference no: EM13693956

Questions Cloud

Public policies might help raise the us standard of living : Explain briefly (in no more than a sentence or two for each part) how the following public policies might help raise the US standard of living?

Find the linear correlation coefficient : Find the linear correlation coefficient for the systolic and diastolic measurements - determine the linear regression equation that uses the systolic pressure to predict the diastolic pressure.

Certificate of need : Certificate of Need

Receipts and subsequent payments to suppliers. : A CPA is reviewing a client's internal controls over merchandise receipts and subsequent payments to suppliers.

The yummy food company purchased equipmen : The Yummy Food Company purchased equipmen

Produce a detailed project plan : Produce a detailed project plan, including some of the key headings given below, and any other information such as recommendations to the Project Board that you consider appropriate.

Income tax : Income Tax

Annual interest compounded continuously : If you deposit $4500 at 5% annual interest compounded continuously, how much money will be in the account after 10 years? If you deposit $4000 into an account paying 9% annual interest compounded monthly, how long until there is $10000 in the account..

Shit the demand curve or supply curve for loan able funds : Suppose a fiscal stimulus package that called for a large increase in government spending actually increases governments’ budget deficit dramatically. When the government runs a larger budget deficit, dose that shit the demand curve or the supply cur..

User Account

All Pages