Buster Container Company is suffering from declining sales of its principal product, non-biodegradable plastic cartons. The president, Dennis Harwood, instructs his controller, Shelly McGlone, to lengthen asset lives to reduce depreciation expense (thus increasing net income). A processing line of automated plastic extruding equipment, purchased for $3.1 million in January 2010, was originally estimated to have a useful life of 8 years and a salvage value of $300,000. Depreciation has been recorded for 2 years on that basis. Dennis wants the estimated life changed to 12 years total, and the straight-line method continued. Shelly is hesitant to make the change, believing it is unethical to increase net income in this manner. Dennis says, â€œHey, the life is only an estimate, and I’ve heard that our competition uses a 12-year life on their production equipment.â€
- Who are the stakeholders in this situation?
- Is the change in asset life unethical, or is it simply a good business practice by an astute president? Discuss in detail.
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