Ashley Kane, the Controller of Nickle Products, was concerned about advertising expenses that were being recorded...

   

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Ashley Kane, the Controller of Nickle Products, was concerned about advertising expenses that were being recorded as a manufacturing cost (inventory) in conjunction with direct material, direct labour and other manufacturing overhead. Ashley wants to reclass the costs as an expense to the current period, however, the President of the organization has asked her to treat the costs as prepaid advertising instead. As Nickle has been experiencing a great deal of financial difficulty since COVID, the President wants to keep the costs on the balance sheet rather than expense the amount as it would further deteriorate the company's net income and may result in the bank calling in their loan. Ashley doesn't know what to do. 1. How will the treatment of the advertising costs affect the financial statements? (16 marks total) a. Distinguish (define and explain the difference) between period and product costs by (4 marks) b. Explain the impact of treating the advertising as a manufacturing cost. Which financial statement(s) would be affected and how? (3 marks) c. d. Explain the impact of reclassifying the advertising costs from inventory to prepaid advertising. Which financial statement(s) would be affected and how? (3 marks) Explain the impact of reclassifying the advertising from inventory to an expense in the current period. Which financial statement(s) would be affected and how? (3 marks) I e. Is it ethical to reclassify period costs to product costs? Provide two implications of reclassifying period to product costs (3 marks) 2. What would you do if you were Ashley ? (2 marks) 3. Peer Evaluation (2 marks) Ashley Kane, the Controller of Nickle Products, was concerned about advertising expenses that were being recorded as a manufacturing cost (inventory) in conjunction with direct material, direct labour and other manufacturing overhead. Ashley wants to reclass the costs as an expense to the current period, however, the President of the organization has asked her to treat the costs as prepaid advertising instead. As Nickle has been experiencing a great deal of financial difficulty since COVID, the President wants to keep the costs on the balance sheet rather than expense the amount as it would further deteriorate the company's net income and may result in the bank calling in their loan. Ashley doesn't know what to do. 1. How will the treatment of the advertising costs affect the financial statements? (16 marks total) a. Distinguish (define and explain the difference) between period and product costs by (4 marks) b. Explain the impact of treating the advertising as a manufacturing cost. Which financial statement(s) would be affected and how? (3 marks) c. d. Explain the impact of reclassifying the advertising costs from inventory to prepaid advertising. Which financial statement(s) would be affected and how? (3 marks) Explain the impact of reclassifying the advertising from inventory to an expense in the current period. Which financial statement(s) would be affected and how? (3 marks) I e. Is it ethical to reclassify period costs to product costs? Provide two implications of reclassifying period to product costs (3 marks) 2. What would you do if you were Ashley ? (2 marks) 3. Peer Evaluation (2 marks)

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1 How will the treatment of the advertising costs affect the financial statements a Distinguish define and explain the difference between period and product costs Period costs are costs that are incur... View the full answer