Steve Morgan, controller for Newton Industries, was reviewing production cost reports for the year. One amount in these reports continued to bother himadvertising. During the year, the company instituted an expensive advertising campaign to sell some of its slower-moving products. Although the advertising campaign had been completed during the year, it was still too early to tell whether it was successful.

There had been much internal debate as how to report the advertising cost associated with this campaign. The Vice President (VP) of Finance argued that the 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 until sold. However, Steve believed that the advertising cost should be reported as an expense in the current period, so as not to overstate net income. Others in the company argued that it should be reported as prepaid advertising and reported as a current asset.

The President of Newton Industries finally came to a decision. She argued that the advertising cost should be reported as inventory, in line with the VP of Finance's belief. The President's arguments were practical ones. She noted that the company was experiencing financial difficulty and expensing this amount in the current period might jeopardize a planned bond offering. She also said that the advertising cost should not be reported as prepaid advertising, since reporting it that way might generate too much attention from the financial community.

1. Which top two principles of the IMA Statement of Professional Ethical Practice are involved in Steve's decision? Explain the reason(s) you chose these principle(s). Points will be deducted if more than two principles are named.
2. Which top three standards in the IMA Statement of Professional Ethical Practice are involved in Steve's decision? State the top 3 part(s) of the standard(s) involved For example: "The decision involves point 2 of the confidentiality standard, point 1 of the integrity standard, and point 3 of the competence standard." If you list more than 3 parts, I will grade only the first 3. Remember that you are in Steve's shoes. For this question, you do not have to state your rationale for the parts you choose.