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Week 2 Discussion 2 - of these assets’ actual life Trade...

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Ethics Case 15-4 American Movieplex, a large movie theater chain, leases most of its theater facilities. In conjunction with recent operating leases, the company spent $28 million for seats and carpeting. The question being discussed over break- fast on Wednesday morning was the length of the depreciation period for these leasehold improvements. The company controller, Sarah Keene, was surprised by the suggestion of Larry Person, her new assistant. Keene:Why 25 years? We’ve never depreciated leasehold improvements for such a long period. Person: I noticed that in my review of back records. But during our expansion to the Midwest, we don’t need expenses to be any higher than necessary. Keene: But isn’t that a pretty rosy estimate
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Unformatted text preview: of these assets’ actual life? Trade publications show an average depreciation period of 12 years. Required: 1. How would increasing the depreciation period affect American Movieplex’s income? Increasing the depreciation period will cause their expenses to be understated which intern will cause the net income to be overstated. 2. Does revising the estimate pose an ethical dilemma? It does pose an ethical dilemma in my opinion because it is just being done to make the figures look good. 3. Who would be affected if Person’s suggestion is followed? Any and everyone that is interested in the financial wellbeing of the company is affected. For example the owners, share holders, and the public....
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