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Can you look over this for me please. I put my ans...




Can you look over this for me please. I put my answers in but want to make sure I'm as accurate as I can be. Thank you! Wayne Terrago, controller for Robbin Industries, was reviewing production cost reports for the year. One amount in these reports continued to bother him?advertising. During the year, the company had instituted an expensive advertising campaign to sell some of its slower-moving products. It was still too early to tell whether the advertising campaign was successful. There had been much internal debate as how to report advertising cost. The vice president of finance argued that advertising costs should be reported as a cost of production, just like direct materials and direct labor. He therefore recommended that this cost be identified as manufacturing overhead and reported as part of inventory costs until sold. Others disagreed. Terrago believed that this cost should be reported as an expense of the current period, based on the conservatism principle. Others argued that it should be reported as Prepaid Advertising and reported as a current asset. The president finally had to decide the issue. He argued that these costs should be reported as inventory. His arguments were practical ones. He noted that the company was experiencing financial difficulty and expensing this amount in the current period might jeopardize a planned bond offering. Also, by reporting the advertising costs as inventory rather than as prepaid advertising, less attention would be directed to it by the financial community. Instructions (a) Who are the stakeholders in this situation? The stakeholders are Wayne Terrago, the vice president, and the president. (b) What are the ethical issues involved in this situation? I believe the ethical issues are that no one could determine how to report the advertising cost. The other ethical issue was that the president decided to report the advertising costs as inventory, to bring less attention to this by the financial community. THis is unethical because it can affect the stakeholders, and this could also lead to future unethical decisions. (c) What would you do if you were Wayne Terrago? Since Wayne Terrago's job is to make sure the company's financial books are prepared correctly, the finances are documented correctly, that money due to the company is collected, and make sure company expenses are paid he needs to report the costs correctly. Even though the president said to report it as inventory, it should be reported as an expense. If he reports the advertising costs wrong, later on it could lead to him being fired. He could also be fired for not doing what the president said to do, but better to be fired for being honest. As far as the company experiencing financial difficulty, this is the risks that many companies take and should not be an excuse to report advertising cost wrongfully.


Paper#9992 | Written in 18-Jul-2015

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