1. Who are the stakeholders in this situation?

According to Kieso, Weygandt and Warfield (2011), stakeholders refer to individuals or organizations such as creditors, employees, directors, shareholders or the community that affect or are affected by actions, objectives and decisions of the organization. In this situation, the stakeholders include Jerry Prior, other accounting staff, upper-level management and the shareholders of Beeler Corporation. Jerry Prior is affected by the impact of depreciation while other accounting staffs fear they might lose their jobs. The upper-level management has the powers and can decide to lay off its employees to reduce the cost. The shareholders of the corporation are affected by the accruing non-cash profit and increased taxation.

1. What are the ethical issues involved?

The ethical issues involved in this scenario include the following. First, Jerry Prior faces an ethical issue of honesty and integrity when issuing financial reports. Precisely, Jerry Prior intends to increase the salvage values and the estimated useful lives without providing enough evidence to support. Such a move will benefit the company in the short-run but affect the shareholder’s interest in the long-run. Second, Jerry Prior exhibits an act of disclosure violation. He keeps information from investors thus depriving them the right to know the correct financial position of the organization.

1. What should Prior do?

Prior should use real data and assumptions to estimate an actual depreciation expense. If Jerry Prior finds that, it is possible to accommodate and increase the useful lives then he can make the changes prospectively. However, if the outcome due to the increase in the estimated useful lives and the salvage values lead to danger to future data, then he should not use this method. Therefore, the organization’s Controller should sell the equipment at fair values to increase profit.

Reference

Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2011). Intermediate accounting: Vol. 1. Hoboken, NJ: John Wiley & Sons.

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