Question

Mackey 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 2017, $180 million was spent on R&D. Of this amount, on January 1, 2017, $20 million was spent on the purchase of equipment to be used in a research project involving the development of a new drug.

The controller, Margret Davidson, is considering capitalizing the equipment and depreciating it over the five-year useful life of the equipment at $4 million per year, even though the equipment will be used on only one project. Separately, the company president has asked Margret to make every effort to increase 2017 earnings because in 2018 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,” Margret wondered to herself.

Required:
identification of the facts
identification of the ethical dilemma
identification of the stakeholders and ethical obligations to the stakeholders
identification of the accounting issue and proper treatment of it
identification of alternative options to address the ethical dilemma
identification of the consequences of the options
choice of a course of action and description of why the choice was made

Answer 1