Mickey Gillespie is the controller of Print Technologies, a publicly owned company. The companyis experiencing financial difficulties and is aggressively looking for ways to cut costs.Suzanne Bedell, the CEO, instructs Gillespie to lengthen from 5 to 10 years the useful life usedin computing depreciation on certain special-purpose machinery. Bedell believes that this changerepresents a substantial cost savings, as it will reduce the depreciation expense on these assets bynearly one-half. Note: The proposed change affects only the depreciation expense recognized in financial state-ments. Depreciation deductions in income tax returns will not be affected. Instructionsa. Discuss the extent to which Bedell’s idea will, in fact, achieve a cost savings. Consider theeffects on both net income and cash flows.b. Who is responsible for estimating the useful lives of plant assets?c. Discuss any ethical issues that Gillespie should consider with respect to Bedell’s instructions.
Mickey Gillespie is the controller of Print Technologies, a publicly owned company. The company
is experiencing financial difficulties and is aggressively looking for ways to cut costs.
Suzanne Bedell, the CEO, instructs Gillespie to lengthen from 5 to 10 years the useful life used
in computing
represents a substantial cost savings, as it will reduce the depreciation expense on these assets by
nearly one-half.
Note: The proposed change affects only the depreciation expense recognized in financial state-
ments. Depreciation deductions in income tax returns will not be affected.
Instructions
a. Discuss the extent to which Bedell’s idea will, in fact, achieve a cost savings. Consider the
effects on both net income and cash flows.
b. Who is responsible for estimating the useful lives of plant assets?
c. Discuss any ethical issues that Gillespie should consider with respect to Bedell’s instructions.
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