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?
