Ethics Case:
Dieker containers is suffering declining sales of its principal product, Not biodegradable plastic cartons. The president, Edward Mohling, instructs his controller Betty Fetters to lengthen asset lives to reduce depreciation expense. A processing line of automated plastic extruding equipment, purchased for $3.1 million in January 2020. was originally estimated to have a useful life of 8 years and a residual value of $300,000. Depreciation has been recorded for 2 years on that basis. Edward wants the estimated life changed to 12 years total, and the straight line method continued. Betty is hesitant to make the change, believing it is unethical to increase net income in this manner. Edward says “Hey, the life is only an estimate and Ive heard that our competition ues a 12 year life on their production equipment.
Instructions:
A. who are the stakeholders in this situation?
B. Is the change in asset life unethical, or is it simply a good business practice by an astute president?
C. What is the effect of Edward Mohling’s proposed change on income before taxes in the year of change?
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