Steve Morgan, controller for Newton 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 cost 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. Morgan believed that this cost should be reported as an expense

of the current period, so as not to overstate net income. 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 advertising cost should be reported as inventory.

His arguments were practical ones. He noted that the company was experiencing financial difficulty and that

expensing this amount in the current period might jeopardize a planned bond offering. Also, by reporting the

advertising cost as inventory rather than as prepaid advertising, less attention would be directed to it by the

financial community.

Based on the above scenario, please write a paper answering the following questions:

$1.$ What are the opportunities, rationalizations, and pressures $/$ incentives involved in this scenario? $($fraud triangle$)$

$2.$ What are the alternatives and the respective consequences of each alternative?