Question

Issue 3: Prepaid Advertising On November 1, 2018 ACE paid $30.000 in advance for eight months of advertising on radio station N3WZ, a local news station. The entry was recorded with a debit to prepaid advertising and a credit to cash. At December 31, 2018 ACE expensed $7,500 (debit to advertising expense and credit to prepaid advertising for 2 of the 8 months). Earlier, on December 29, 2018 ACE received a letter from N3WZ indicating that the radio station was changing its format on January 1, 2019 to "classic heavy metal." It will now use the call letters ROCK. Although ACE has no real data on this, it is management's impression that most heavy metal fans buy fewer networked computer systems than news station listeners. Accordingly, management attempted to cancel the agreement and receive a refund. Unfortunately, the contract for the advertising provides no assurances about a change in station format and ACE's lawyers say that obtaining any recovery in a court proceeding is doubtful. ROCK has refused any attempts at renegotiation and has suggested that ACE might be surprised at the number of customers that might respond to the commercials. ACE management still contends that very few, if any, listeners will respond to the advertisement. What entry or disclosure, if any, is necessary in this circumstance?

Answer 1

The entry for next year will be

Advertising A/c Dr. 22,500
To Prepaid advertising A/c 22,500
( being the balace of 6month advertisment has to be done)

As per the ACE's lawers, obtaning any recovery in a court proceeding is doubltful and ROCK has suggested that they might get surprised by the number of customers that might respond to commercial. If there is no Terms and Condition on the advertising contract regarding "if radio changes its format will will not be lible to refund your money" then ACE should go to court and they might get helped as there is no terms and condition on this. And if there is a Term and Condition regarding this then we have to take the sugestion of ROCK as we have signed the contrac with the terms and conditon of the radio station .