Question
On December 1st, 2018 Under Armour, Inc, prepays (with cash) for a $4.5 million advertisement campaign to be conducted by a large advertisement agency.
On December 1st, 2018 Under Armour, Inc, prepays (with cash) for a $4.5 million advertisement campaign to be conducted by a large advertisement agency. The advertisements are scheduled to run for 3 months (December 2018, January 2019 and February 2019). The year-ended December 31, 2018 looks to be a very profitable year for Under Armour, Inc. but the projections for the next fiscal year (beginning January 1, 2019 and ending on December 31, 2019) do not look as good. Management would like to expense the entire cost of the advertising campaign in the year-ended December 31, 2018. Requirement: Write a memo to management discussing how the transaction should be handled and why. The memo should include at least the below items: 1. What accounting methods are relevant to this transaction? Is any of the accounting methods violated if the entire cost is expensed in December 2018? 2. What is the effect of expensing the entire advertising cost on the company's income statement in December 2018 rather than expensing it throughout the three months including the year 2019? 3. What do you think the company should do, please give your recommendation?
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