Acme Incorporated

Acme Incorporated - several years. Acme itself could be one...

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Acme Incorporated Memo To: Joseph Legoria From: Stephanie Delaney Date: 3/9/12 After reviewing Acme’s accounting policies I noted differences in the tax and book depreciation methods which allowed the company to realize a sizeable deferred tax liability. Taxable income would exceed financial accounting income once this temporary difference reversed, and Acme would have to pay the taxes it deferred. To prevent this from happening, Acme sells off its plant assets before they reverse in the deferred tax liability account. Selling off the plant assets before the temporary difference reverses means that Acme will pay less income taxes. This may bring about some ethical concerns because Acme is minimizing the amount of taxes they would otherwise be required to pay. However, the means by which they are minimizing their tax payments is legal and considered an incentive provided by the government. There are many who could be harmed by Acme deferring income taxes payable for
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Unformatted text preview: several years. Acme itself could be one of them. When they sell off the plant assets, they will have to purchase replacements. This could be very costly which will negatively affect their cash flow. Other taxpayers and the federal government will be harmed as well. Acme will end up paying fewer taxes to the government which will cause these other taxpayers to pay more. My professional responsibility as a CPA is to maintain a certain standard of conduct and protect the public by following strict ethical rules. If I come across anything I think is unethical, it is my duty to report it immediately to higher management and the Board of Directors. In this situation, I do not believe Acme is acting unethically. They are just trying to reduce the amount of income taxes paid through a perfectly legal approach. 1...
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This note was uploaded on 03/09/2012 for the course ACCT 3021 taught by Professor Delaune during the Spring '06 term at LSU.

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