Prepaid Advertising Sloan Ornament Company produces ornaments for Christmas trees. In January of the current year, Sloan’s marketing department hired a new advertising agency and prepaid $240,000 in advertising costs for the year. Because of the seasonality of Sloan’s sales, all its ads are run in magazines in the months of September (40 percent of the total), October (40 percent of the total), and November (20 percent of the total). Although some sales occur in September and October, a majority of the sales occur in the months of November and December.

a. What arguments can be made in favor of reporting the full

$240,000 as advertising expense at the time payment is made? At the time the ads are run? At the time increased sales occur?

b. Give the amount that should be reported as advertising expense for each month of the current year under the preferred alternative.

c. What other factors might be taken into consideration in determining when advertising expense should be recognized?