Solved: Aston Corporation performs year end planning in

November of each year

Aston Corporation performs year end planning in November of each year

Aston Corporation performs year-end planning in November of each year before its calendar
year ends in December. The preliminary estimated net income is $3 million. The CFO, Rita
Warren, meets with the company president, J. B. Aston, to review the projected numbers. She
presents the following projected information.

ASTON CORPORATIONS

SEELECTED BALANCE SHEET

INFORMATION AT DECEMBER 31, 2017

Estimated cash balance.............................................$ 5,000,000

Available-for-sale debt investments (at cost)....................10,000,000

Fair value adjustment (1/1/17).......................................---0---

Estimated fair value at December 31, 2017:

Other information at December 31, 2017:

Equipment.....................................................$3,000,000

Accumulated depreciation (5-year SL)......................1,200,000

New robotic equipment (purchased 1/1/17).................5,000,000

Accumulated depreciation (5-year DDB)...................2,000,000

The corporation has never used robotic equipment before, and Warren assumed an accelerated
method because of the rapidly changing technology in robotic equipment. The company
normally uses straight-line depreciation for production equipment.

Aston explains to Warren that it is important for the corporation to show a $7,000,000 income
before taxes because Aston receives a $1,000,000 bonus if the income before taxes and bonus

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 reaches $7,000,000. Aston also does not want the company to pay more than $3,000,000 in
income taxes to the government.

Instructions

(a) What can Warren do within GAAP to accommodate the president's wishes to achieve
$7,000,000 in income before taxes and bonus? Present the revised income statement based on
your decision.

(b) Are the actions ethical? Who are the stakeholders in this decision, and what effect do
Warren's actions have on their interests?

Aston Corporation performs year end planning in November of each year

ANSWER
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year/

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