On December 1^st, 2017 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 2017, January 2018 and February 2018).

The year-ended December 31, 2017, looks to be a very profitable year for Under Armour, Inc. but the projections for the next fiscal year (beginning January 1, 2018, and ending on December 31, 2018) do not look as good. Management would like to expense the entire cost of the advertising campaign in the year ended December 31, 2017.

1. What is the effect of expensing the advertising cost on the company’s income statement for 2017 and 2018?
2. What accounting principles are relevant to this transaction? Are they violated?
3. What do you think the company should do, please give your recommendation.

Answer rating: 100% (QA)

Effects of Expensing the Advertising Cost in 2017 2017 Increased expenses Recording the entire 45 mi... View the full answer