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Western purchased land and a building for the lump sum of $3,000,000. To maximize their...

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Accounting

Western purchased land and a building for the lump sum of $3,000,000. To maximize their tax deduction, Western allocated 90% of the purchase price to the building and only 10% to the land. A more realistic allocation based on assessed value would have been 70% to the building and 30% to the land.

1. What impact(s) will these actions have on the companys financial statements? Be sure to discuss the balance sheet and the income statement separately, and be specific about the impacts on each statement (i.e. overstatement/understatement of account balances and net income). What are the advantages of these impacts (i.e. why is Western doing this)?

2. Discuss the role that accounting should play in this situation. Which GAAP principle(s) are being violated?

3. Discuss the ethical issues in this case (be sure to identify each party involved and whether or not they are acting in an ethical manner).

4. Identify who could be harmed and how they could be harmed (be specific). Do not include the individuals at Western who made the allocation.

5. As a personal friend, what advice would you give to the accountant who works for Western?

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