Reference no: EM132695242

ABC Container Company has declining sales of its principal product, non-biodegradable plastic cartons. The President, Joseph Stanton, instructs his controller to lengthen the estimated assets lives in order to reduce the amortization expense and increase net income. A processing line of automated plastic extruding equipment, purchased for $2.7 million in January 2017, was originally estimated to have a useful life of five years and a residual value of $300,000. Amortization has been recorded for two years on that basis. The president wants its estimated useful life changed to eight years (total), and continued use of the straight-line method. The controller is hesitant to make the change, believing it is unethical to increase net income in this manner. The president says ;Hey, the useful life is only an estimate. Besides, heard that our competition uses an eight-year estimated life on its production equipment.

Required:

Problem a) Who are the stakeholders in this situation? Identify and explain why.

Problem b) Is the suggested change in asset life unethical, or simply a shrewd business practice by an astute president?

Problem c) What is the effect of the president's proposed change on net income in the year of the change?