Michael Jordan, controller for the Bozrah Corporation, is preparing the company's income statement at year-end. He notes that the company lost a considerable sum on the sale of some equipment it replaced. Since the company has sold equipment routinely in the past, Jordan knows the losses cannot be reported as extraordinary. He also does not want to highlight it as a material loss since that reflects poorly on him and the company. Jordan reasons that if the company had recorded more depreciation during the assets' lives, the losses would not be so great. Since depreciation is included among the company's operating expenses, he wants to report the losses along with the company's expenses.
With your knowledge of conceptual framework of accounting and preparation of an income statement and a balance sheet, discuss the soundness of Jordan's proposition. Include any relevant arguments to enhance your position on the issue.
Jordan's contention to include the loss on sale of fixed asset in the operating expenses along with the depreciation in the preparation of income ...
Earnings management controllers for the Bozrah Corporation are examined.