The controller for X$-$Line Manufacturing, Joe Dobs, was reviewing the yearly production cost reports. The amount for advertising didn$$t seem right. During the year, X$-$Line Manufacturing had started an expensive advertising campaign to boost sales.

There had been different opinions on how to report the advertising cost. The vice$-$president of finance wanted to report them as a product cost, just like direct materials and direct labour. As such, she wanted advertising to be classified as manufacturing overhead. Therefore, it would be part of inventory until the goods were sold. No one else agreed. The others wanted it to be reported as a period cost and therefore expensed. Some others believed the cost should be reported as a prepaid asset called prepaid advertising and listed on the balance sheet as a current asset.

The CEO made the final decision. He reported the costs as inventory. He did this partly because the company was experiencing low sales and therefore low profits, and expensing advertising in the current period would decrease what small profit was there. Also, he believed reporting advertising as inventory would not attract negative attention from financial analysts, but listing it as a current asset would.

Instructions

Answer the following questions in paragraph form:

Who are the stakeholders in this situation?

What are the ethical issues?

What would you do if you were Joe Dobs and wished to be ethical and follow accounting standards?