Jerry Prior, Beeler AGs controller, is concerned that net income may be lower this year. He is afraid upper-level management

Question:

Jerry Prior, Beeler AG’s controller, is concerned that net income may be lower this year. He is afraid upper-level management might recommend cost reductions by laying off accounting staff, including him. Prior knows that depreciation is a major expense for Beeler. The company currently uses the double-declining-balance method for both financial reporting and tax purposes, and he’s thinking of selling equipment that, given its age, is primarily used when there are periodic spikes in demand. The equipment has a carrying amount of €2,000,000 and a fair value of €2,180,000. The gain on the sale would be reported in the income statement. He doesn’t want to highlight this method of increasing income. He thinks, “Why don’t I increase the estimated useful lives and the residual values? That will decrease depreciation expense and require less extensive disclosure, since the changes are accounted for prospectively. I may be able to save my job and those of my staff.”


Instructions

Answer the following questions.

a. Who are the stakeholders in this situation?

b. What are the ethical issues involved?

c. What should Prior do?

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Step by Step Answer:

Related Book For  answer-question

Intermediate Accounting IFRS

ISBN: 9781119607519

4th Edition

Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield

Question Details
Chapter # 11
Section: Concepts for Analysis
Problem: 4
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Question Posted: July 30, 2021 00:53:18