Calibri PRESTON OIL and GAS, Inc. Garry Free, controller for Preston Oll and Gas, Inc, was reviewing production cost reports for the year. One amount in these reports continued to bother him, advertising and promotion and promotion costs. During the year the company had instituted an expensive advertising and promotion and promotion campaign to increase the sale of many of it products. At present, it is too early to tell whether the advertising and promotion campaign was successful Recently, there has been much debate about the accounting treatment and reporting of advertising and promotion and promotion cost. Carl Benson, the vice president of finance, argues that advertising and promotion costs should be reported as a cost of production, just like direct materials and direct labor. He strongly recommends that these costs be identified as manufacturing overhead and reported as part of cost of goods sold and ending inventory costs. Other managers disagreed. Jamaal Wells, manager of Warehouse Operations believes that advertising and promotion costs should be reported as an expense of the current period, based on the conservatism principles of accounting. Others argued that it should be recognized as Prepaid Advertising and Promotion and reported as a current asset The president, Kevin Simone, finally must decide the issue. He argues that these advertising and promotion costs should be included in the cost of goods sold and the cost of ending inventory. His arguments were practical ones. Mr. Simone notes that the company was experiencing financial difficulty and expensing this amount in the current period might jeopardize a planned bond offering by violating a covenant in the bond agreement. Also, by reporting the advertising and promotion costs as inventory rather than as prepaid advertising and promotion, less attention would be directed to it by the financial community REQUIRED: You are an outside consultant and have been asked by Garry Free to assist in this situation. Write a letter to Mr. Free that addresses questions and issues that you have observed and believe should be considered by all parties involved. You should specifically address the following 1] What are the ethical issues involved in this situation? 2] Explain who the stakeholders are in this situation and the risks they are up against under the circumstances. 13] What actions) do You recommend should be taken by Mr. Free at this point? EXPLAIN [4] What actions do you discourage? Be specific