CA11-5 (Depreciation ChoiceEthics)

CA11-5 (Depreciation ChoiceEthics) Jerry Prior, BeelerCorporations controller, is concerned that net income may be lower this year.He is afraid upper-level management might recommend cost reductions by layingoff accounting staff, including him.Prior knows that depreciation is a major expense for Beeler.The company currently uses the double- declining-balance method for bothfinancial reporting and tax purposes, and hes thinking of selling equip- mentthat, given its age, is primarily used when there are periodic spikes indemand. The equipment has a carrying value of $2,000,000 and a fair value of$2,180,000. The gain on the sale would be reported in the income statement. Hedoesnt want to highlight this method of increasing income. He thinks, Whydont I increase the estimated useful lives and the salvage values? That willdecrease depreciation expense and require less extensive disclosure, since thechanges are accounted for prospectively. I may be able to savemy job and those of my staff.InstructionsAnswer the following questions.(a) Who are thestakeholders in this situation?(b) What are the ethical issues involved? (c) What should Prior do?