On May 31, 2010, Deliver It, the overnight shipper, had total assets of ($24) billion and total
Question:
On May 31, 2010, Deliver It, the overnight shipper, had total assets of \($24\) billion and total liabilities of \($17\) billion. Included among the assets were property, plant, and equipment with a cost of \($19\) billion and accumulated depreciation of \($11\) billion. During the year ended May 31, 2010, Deliver It earned total revenues of \($32\) billion and had total expenses of \($27\) billion, of which 5 billion was depreciation expenses. The CFO and the Controller are concerned that the results of 2010 will make investors unhappy. Additionally, both hold stock options to purchase shares at a reduced price, so they would like to see the market price continue to grow. They decide to “extend the life of assets so that depreciation will be reduced to three billion for 2010.
Flequireniersts
1. What is the change to net income due to their decision?
2. What appears to be their motivation for the change in asset lives? Is this ethical? Explain.
Step by Step Answer:
Financial And Managerial Accounting
ISBN: 9780135080191
2nd Edition
Authors: Charles T Horngren, Jr Walter T Harrison