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ACC 306 Week 2 DQ 2 Ethics Case 15-4

ACC 306 Week 2 DQ 2 Ethics Case 15-4

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ACC 306 Week 2 DQ 2 Ethics Case 15-4

Ethics Case 15–4 - American Movieplex - Leasehold improvements ● LO3

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 break- fast on Wednesday morning was the length of the depreciation period for these leasehold improvements. The com- pany 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.

Person:            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 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 income?

2.         Does revising the estimate pose an ethical dilemma?

3.         Who would be affected if Person’s suggestion is followed?

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