Ajax Computer Company Is an Accrual-Method Calendar-Year Taxpayer

question 36

Multiple Choice

Ajax Computer Company is an accrual-method calendar-year taxpayer. Ajax has never advertised in the national media prior to this year. In November of this year, however, Ajax paid $1 million for television advertising time during a "super" sporting event scheduled to take place in early February of next year. In addition, in November of this year the company paid $500,000 fora one-time advertising blitz during a professional golf tournament in April of next year. What amount of these payments, if any, can Ajax deduct this year?

• A)$1 million
• B)$500,000
• C)$1.5 million
• D)$1.5 million only if the professional golf tournament is played before April 15
• E)No deduction can be claimed this year

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Definitions:

Units-of-Activity Method

A depreciation method where the expense is based on the number of units produced or the use of the asset, rather than the passage of time.

Double-Declining-Balance

An accelerated method of depreciation that doubles the normal depreciation rate to expense the asset more quickly.

Estimated Life

The expected duration over which an asset is likely to be useful or productive in its intended operation, used for depreciation purposes.

Straight-Line Depreciation

A method of allocating an asset's cost evenly across its useful life, resulting in the same depreciation expense each year.