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CA10-7 (Cost of Land vs. BuildingEthics) Tones Company purchased a warehouse in a downtown district where land values are rapidly increasing.
CA10-7 (Cost of Land vs. Building—Ethics) Tones Company purchased a warehouse in a downtown districtwhere land values are rapidly increasing. Gerald Carter, controller, and Wilma Ankara, financial vicepresident,are trying to allocate the cost of the purchase between the land and the building. Noting thatdepreciation can be taken only on the building, Carter favors placing a very high proportion of the coston the warehouse itself, thus reducing taxable income and income taxes. Ankara, his supervisor, arguesthat the allocation should recognize the increasing value of the land, regardless of the depreciation potentialof the warehouse. Besides, she says, net income is negatively impacted by additional depreciationand will cause the company’s stock price to go down.InstructionsAnswer the following questions.(a) What stakeholder interests are in conflict?(b) Evaluate the impact of the each scenario. (c) Propose an ethical recommendation that is in the best interest of the company.
