Wayne Terrago controller for Robin Industries was reviewing production cost report for the year. One amount on this report continued to bother him which is advertising. During this year the company has instituted an expensive advertising campaign to sell some of its slower moving products. it was too early to tell whether the advertising campaign was successful.

There had been much internal debt as how to report advertising costs. The Vise President of finance argued that the advertising costs should be reported as cost of production just like direct material and direct labor. He therefore recommends that this cost identified as manufacturing overhead and reported as parts of inventory costs until sold. Others disagreed. Terrago believes that this cost should be reported as an expense of the current material based on conservatism principles. Others are argued that is should be reported as prepaid advertising and reported as current assets.

The president finally had decided the issues. He argued that this cost should be reported as inventory. His argument was practical one. He noted that the company was experiencing financial difficulty and expensing this amount in the current period might jeopardize a plan bon offering. Also by reporting that advertising cost as inventory rather than as prepaid advertising less attention would be directed to it by the financial community.

1. Who are the stakeholders?
2. What ethical issues involved in this situation?
3. What do you do if you were Wayne Terrago?