Question

Ethics Case 15-3 Leasehold improvements QL015-3 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 breakfast 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. 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 Person: necessary. Keene: But isn't that a pretty rosy estimate 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 earnings? 2. Does revising the estimate pose an ethical dilemma? 3. Who would be affected if Person's suggestion is followed?

Answer 1

Solution How would increasing the dr depreciation period affect American Moviepláxâ€TMs ecurning If the depace depreciation period is increased then the nel income will will be incre- ased because depreciation period would extend over a period of next 25 year increase in deprection will also lead to reduce in payment of lease rentel every year so that not income will ( increases period of 13 year ( present 12 year extended for 25 year different 13 year) american moviepley. period over the

Does the estimate revising pose ethical dilemum The reason reason for revising estimate and to Change lease agreemene to increcue the net income for americuh also reduces expenses which would lead it ethical dilemma movieplex anel be affected if who would Rensonâ€TMs followed suggestion is O stakeholder administrators employee, fenders, investors and auditor would be affected if the personafMS followed Suggestion