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Ethics Case #2 Western Landscaping purchased land and a building for the lump sum of $3 000 000. To get the maximum tax deduction Western allocated 90% of the purchase price to the building and only 10% to the land. A more realistic allocation would have been 70% to the building and 30% to the land. (adapted from Horngren’s Financial & Managerial Accounting: The Financial Chapters 4e Pearson Publishing p. 600) 1. What impact(s) will these actions have on the company’s financial statements? Be sure to discuss the balance sheet and the income statement separately and be specific about the impacts on each statement (i.e. overstatement/understatement of account balances and net income). What are the advantages of these impacts (i.e. why is Western doing this)? Land and building are classified as the company’s fixed assets in the company’s balance sheet. Building is subject to depreciation while land is not. Depreciation lower and this will harm the government’s activities. The government uses tax to provide public amenities to its citizens. It means that the services provided the government will be impaired. b. The suppliers The suppliers look at the financial reports to assess the creditworthiness of the company. If the value of the company is overestimated the suppliers can make wrong judgment and they cannot be sure whether their goods will be paid. They could be harmed. 5. As a personal friend what advice would you give to the accountant who works for Western? The accounting profession is guided by the principles of integrity objectivity confidentiality professional behavior confidential intelligence and due care. The accountant should work responsibly and promote all principles in every situation. The accountant should also record and report the true financial position of the company because honesty eliminates unethical behaviors fines penalties or loss of designation. [...]
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Subject Area: Accounting
Document Type: Dissertation
