On November 1, 20X3 BCE paid $30,000 in advance for eight months of advertising on radio station
Question:
On November 1, 20X3 BCE paid $30,000 in advance for eight months of advertising on radio station KNEWZ, a local news station. The entry was recorded with a debit to prepaid advertising and a credit to cash. At December 31, 20X3 BCE expensed $7,500 (debit to advertising expense and credit to prepaid advertising for 2 of the 8 months). Earlier, on December 29, 20X3 BCE received a letter from KNEWZ indicating that the radio station was changing its format on January 1, 20X4 to “classic heavy metal.” In brief, news is being replaced by old songs of Phish, Ozzie Osbourne, and Metallica. It will now use the call letters KDEV. Although BCE has no real data on this, it is management’s impression that most Ozzie Osbourne fans buy fewer networked computer systems than news station listeners. Accordingly, management attempted to cancel the agreement and receive a refund. Regrettably, the contract for the advertising provides no assurances about a change in station format and BCE’s lawyers say that obtaining any recovery in a court proceeding is doubtful. KDEV has refused any attempts at renegotiation and has suggested that BCE might be surprised at the number of customers that might respond to the commercials. KDEV is even willing to work with BCE to redo commercials eliminating the old ones that used the “sappy sounding” news announcers and replacing them with commercials using their new announcers; KDEV is willing to record these commercials for no additional cost. BCE management still questions whether the advertising will be well placed, but does believe that there may be a few listeners who might respond to the advertisement. BCE legal counsel suggests that it is not worth pursuing this matter further. What entry or disclosure, if any, is necessary in this circumstance?
