Carol Keene, corporate comptroller for Dumaine Industries, is trying to decide h
ID: 2445825 • Letter: C
Question
Carol Keene, corporate comptroller for Dumaine Industries, is trying to decide how to present “Property, plant, and equipment” in the balance sheet. She realizes that the statement of cash flows will show that the company made a significant investment in purchasing new equipment this year, but overall she knows the company’s plant assets are rather old. She feels that she can disclose one figure titled “Property, plant, and equipment, net of depreciation,” and the result will be a low figure. However, it will not disclose the age of the assets. If she chooses to show the cost less accumulated depreciation, the age of the assets will be apparent. She proposes the following. Property, plant, and equipment, net of depreciation $10,000,000 rather than Property, plant, and equipment $50,000,000 Less: Accumulated depreciation (40,000,000) Net book value $10,000,000 Instructions Answer the following questions. (a) What are the ethical issues involved? (b) What should Keene do? Carol Keene, corporate comptroller for Dumaine Industries, is trying to decide how to present “Property, plant, and equipment” in the balance sheet. She realizes that the statement of cash flows will show that the company made a significant investment in purchasing new equipment this year, but overall she knows the company’s plant assets are rather old. She feels that she can disclose one figure titled “Property, plant, and equipment, net of depreciation,” and the result will be a low figure. However, it will not disclose the age of the assets. If she chooses to show the cost less accumulated depreciation, the age of the assets will be apparent. She proposes the following. Property, plant, and equipment, net of depreciation $10,000,000 rather than Property, plant, and equipment $50,000,000 Less: Accumulated depreciation (40,000,000) Net book value $10,000,000 Instructions Answer the following questions. (a) What are the ethical issues involved? (b) What should Keene do? Carol Keene, corporate comptroller for Dumaine Industries, is trying to decide how to present “Property, plant, and equipment” in the balance sheet. She realizes that the statement of cash flows will show that the company made a significant investment in purchasing new equipment this year, but overall she knows the company’s plant assets are rather old. She feels that she can disclose one figure titled “Property, plant, and equipment, net of depreciation,” and the result will be a low figure. However, it will not disclose the age of the assets. If she chooses to show the cost less accumulated depreciation, the age of the assets will be apparent. She proposes the following. Property, plant, and equipment, net of depreciation $10,000,000 rather than Property, plant, and equipment $50,000,000 Less: Accumulated depreciation (40,000,000) Net book value $10,000,000 Instructions Answer the following questions. (a) What are the ethical issues involved? (b) What should Keene do?Explanation / Answer
Solution-(a)
Keene wanted to combine the Property, Plant, and Equipment with the Accumulated Depreciation on the balance sheet so it doesn’t show the age of the equipment. However it isn’t right and breaks the guidelines set by the GAAP. This method isn’t going to provide an accurate amount on the balance sheet. This will show her lack of responsibility in reporting the financial information accurately, honesty, and full disclosure of the company’s assets. What she’s actually trying to do is make the company seem to be working more efficiently when it’s not.
Solution-(b)
In order to make the balance sheet accurate Keene needs to account for the Property, Plant, and Equipment as one amount on the balance sheet and the Accumulated Depreciation as a separate amountunder the account it’s associated with so that the depreciation of the equipment is accurate so that the company will know the truth about it having to be replaced. By doing so Keene will show the company that she’s responsible in reporting the financial stability of the business.