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ACC 305 Week 5 Ethics
Case 10-12
Ethics Case 10-12 on
page 553 - Mayer Biotechnical, Inc - Research and development ● LO8
Mayer Biotechnical,
Inc., develops, manufactures, and sells pharmaceuticals. Significant research
and development (R&D) expenditures are made for the development of new
drugs and the improvement of existing drugs. During 2011, $220 million was
spent on R&D. Of this amount, $30 million was spent on the purchase of
equipment to be used in a research project involving the development of a new
antibiotic.
The controller, Alice
Cooper, is considering capitalizing the equipment and depreciating it over the
five-year useful life of the equipment at $6 million per year, even though the
equipment likely will be used on only one project. The company president has
asked Alice to make every effort to increase 2011 earnings because in 2012 the
company will be seeking significant new financing from both debt and equity
sources. “I guess we might use the equipment in other projects later,” Alice
wondered to herself.
Required:
1. Assuming that the
equipment was purchased at the beginning of 2011, by how much would Alice’s
treatment of the equipment increase before tax earnings as opposed to expensing
the equipment cost?
2. Discuss the ethical
dilemma Alice faces in determining the treatment of the $30 million equipment
purchase.
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