Problem
EZ Games installed vending machines throughout the country. Customers can borrow video games from the vending machine and return the games to any vending machine.
Because of the wear and tear on the games, the useful life of the assets are going to be reduced. At the end of 2022, approximately $150,000,000 worth of video games have been moved to EZ Games vending machines. $60,000,000 of the games are current, while approximately $90,000,000 of the games that were moved are non current assets with four years remaining in useful life at the beginning of the year. An amortization of $22,500,000 is recorded in the financial statements. The assets' useful life have been changed to three years.
Task
Discuss the accounting issue above using the following guideline:
A. Is this a matter of disclosure, recognition, measurement and/or presentation?
B. What are the implications of the matter described in Question A? What effect will it have on EZ Games's debt to equity and EPS?
C. What are the alternatives (if any) to the matter described in Question A?
D. What is the best course of action for EZ Games moving forward?