XYZ company has just completed its second year of operations. At the beginning of its rst scal year, the company purchased some equipment for $700,000 and estimated that the equipment would have a useful life of ve years and no residual value. The company uses the straight-line depreciation method. The company reported net income for the first two years of operations as follows:\ Year Net Income (Loss)\ 1 $60,000\ 2 (3,000)\ The CFO, has recently run nancial models to predict future net income, and he expects net losses to continue at $(2,000) per year for the next three years. This prediction has caused some concerns to the board, thus the CFO is under pressure from the company's owner to return the company to Year 1 net income levels. If the company does not meet these goals, he will be terminated.\ The CFO the company change the estimated useful life of the equipment to\ 10 years and increase the equipments estimated residual value to $50,000. This will reduce\ depreciation expense and increase net income.\ \ 1. Evaluate the decision to change the equipments estimated useful life and\ Estimated residual value to improve earnings. How does this change impact the usefulness? of the company's net income for external decision-makers? 20 pts\ \ 2. Is the CFO are they acting in an ethical manner? Explain 30 pts

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1 Evaluating the decision to change the equipments estimated useful life and residual value The decision to change the estimated useful life of the equipment from 5 years to 10 years and increase the ... View the full answer