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

question 127

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 $1.8 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 $1,300,000 for a 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)$1.80 million
• B)$1.30 million
• C)$3.10 million
• D)$3.10 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:

Current Assets

Assets that are expected to be converted into cash, sold, or consumed in the business cycle within one year.

Current Liabilities

Short-term financial obligations due within one year or less, typically including accounts payable, short-term loans, and other similar liabilities.

Obligations

The responsibilities or liabilities a company has, typically financial in nature, that it is required to pay to others.

Liquidity

The ability to change an asset into cash easily without affecting its market price.