Purchase Solution

EC 11-10 Impair or change depreciation life? Ethics?

Not what you're looking for?

Ask Custom Question

EC 11-10 At the beginning of 2009, the Healthy Life 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 2009 and 2010.
Late in 2011, it became apparent that the sales of the new frozen food line were significantly below expectations. The company decided to continue production for two more years (2012 and 2013) and then discontinued the line. At that time, the equipment will be sold for minimal scrap values.
The controller, Heather Meyer, was asked by Harvey Dent, the company's chief executive officer (CEO) to determine the appropriate treatment of the change in service life of the equipment. Heather determined that there has been 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 Heather's conclusion becausw3 of the effect it would have on 2011 income. "Looks like a simple revision in service life from 10 years to 5 years to me" Dent concluded. "Let's go with it that way, Heather."
Required
1. What is the difference in before-Tax income between the CEO's and Heather's treatment of the situation?
2. Discuss Heather Meyer's ethical dilemma.

Attachments
Purchase this Solution
Solution Summary

See excel (attached) for analysis of the before tax difference in 2012 and the difference in depreciation for the remaining life. A discussion about the dilemma follows (136 words plus a reference).

Solution Preview

See excel (attached) for analysis of the before tax difference in 2012 and the difference in depreciation for the remaining life. A discussion about the dilemma follows (136 words plus a reference).

Heather's dilemma is whether to ...

Solution provided by:
Carol Sargent, PhD
Education
  • BSc, University of Virginia
  • MSc, University of Virginia
  • PhD, Georgia State University
Recent Feedback
  • "hey just wanted to know if you used 0% for the risk free rate and if you didn't if you could adjust it please and thank you "
  • "Thank, this is more clear to me now."
  • "Awesome job! "
  • "ty"
  • "Great Analysis, thank you so much"
Purchase this Solution
Free BrainMass Quizzes
Introduction to Finance

This quiz test introductory finance topics.

Writing Business Plans

This quiz will test your understanding of how to write good business plans, the usual components of a good plan, purposes, terms, and writing style tips.

Cost Concepts: Analyzing Costs in Managerial Accounting

This quiz gives students the opportunity to assess their knowledge of cost concepts used in managerial accounting such as opportunity costs, marginal costs, relevant costs and the benefits and relationships that derive from them.

MS Word 2010-Tricky Features

These questions are based on features of the previous word versions that were easy to figure out, but now seem more hidden to me.

Understanding Management

This quiz will help you understand the dimensions of employee diversity as well as how to manage a culturally diverse workforce.

View More Free Quizzes
Related BrainMass Solutions

  • Depreciation Methods and Switching Methods

    392747 E 11-10 11-5 Depreciation methods: straight-line, double-declining-balance, and sum-of-the-years' digits method; switch to straight line.

  • Depreciation-Change in Estimate

    62690 11:11. (Depreciation-Change in Estimate) 11.

  • Depreciation - change in estimate

    341287 E11-11 Depreciation - change in estimate for Tom Brady Co: prepare entries E11-11 (Depreciation - Change in Estimate) Machinery purchased for $60,000 by Tom Brady Co.

  • Depreciation and accounting change for Wardell, Clinton Poultry

    422972 Depreciation and accounting change for Wardell, Clinton Poultry E 11-18. Wardell Company purchased a minicomputer on January 1, 2009, at a cost of 440,000.

  • E11-4 Depreciation; E11-1 Change in Estimate; E12-6 Intangib

    Compute depreciation charge for 2008 under: A) Straight Line B) Units of output C) Working hours D) Sum of years digits E) Declining Balance (use 20% as annual rate) E11-11 (Depreciation-Change in Estimate) Machinery purchased

  • Financcial Math

    218560 Financial Math Examples Example: EC: = = 1.446-1 = .0446 or 44.6 percent 2/10, net 40 EC: = = 2/10, net 50 EC: = = 3/10, net 50 EC: = = 2/20, net 40 EC: = = Example: EC: = = 1.446-1 = .0446 or 44.6

  • Geometry Theorem Proof

    Step 12, step 11, and algebra. (Dividing the first equation of step 12 by DC, we get AC/DC = AD/DC + 1. Dividing the second equation of step 12 by BC, we get EC/BC = EB/BC + 1. But AC/DC = EC/BC by step 11.) 14 AD/DC = AB/BC. Steps 13 and 9.

  • Cost of sales, Ending inventory under FIFO, LIFO

    The equipment has an estimates life of five years or 27,000 units of production and an estimated residual value of 2,600. Compute depreciation for 2001, 2002 and 2003, using the methods indicated below.

  • Depreciation and Minimum Liability Computation

    In 2008, the company decided to change the method of computing depreciation to the straight-line method for the equipment, but no change was made in the estimated service life or salvage value.

View More Related Solutions