
Concept explainers
Ethical Decision Making: A Mini-Case
Assume you work as an assistant accountant in the head office of a DVD movie kiosk business, similar to Outerwall’s Redbox machines. With the popularity of online movie rental operations, your company has struggled to meet its earnings targets for the year. It is important for the company to meet its earnings targets this year because the company is renegotiating a bank loan next month, and the terms of that loan are likely to depend on the company’s reported financial success. Also, the company plans to issue more stock to the public in the upcoming year, to obtain funds for establishing its own presence in the online movie rental business. The chief financial officer (CFO) has approached you with a solution to the earnings dilemma. She proposes that the
Required:
Discuss the CFO’s proposed solution. In your discussion, consider the following questions: Will the change in depreciation affect net income in the current year in the way that the CFO described?
How will it affect net income in the following year? Is the CFO correct when she claims that the change in estimated depreciation is allowed by GAAP? Who relies on the video company’s financial statements when making decisions? Why might their decisions be affected by the CFO’s proposed solution? Is it possible that their decisions would not be affected? What should you do?

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Chapter 4 Solutions
Fundamentals Of Financial Accounting
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