Late in the Current Year, Jolsen Company Signed a Four-Year

question 65

Multiple Choice

Late in the current year, Jolsen Company signed a four-year contract with an advertising agency. Under the contract, Jolsen must pay $375,000 annually for the agency's services. After Jolsen signed the contract, Congress enacted legislation disallowing any deduction for advertising expense for future tax years. Jolsen underestimated the after-tax cost of the contract because of:

• A) Marginal tax rate uncertainty
• B) Financial risk
• C) Audit risk
• D) Tax law uncertainty

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Definitions:

Make Restitution

The act of compensating for loss, damage, or injury caused, often in the context of legal or financial remedies.

Personal Performance

The execution of tasks or duties by an individual based on their own skills and efforts.

Reasonable Person

A hypothetical individual who exercises average care, skill, and judgment in conduct, serving as a legal standard.

Mutual Rescission

An agreement between the parties to cancel their contract, releasing the parties from further obligations under the contract. The object of the agreement is to restore the parties to the positions they would have occupied had no contract ever been formed.