Ajax Computer Company Is an Accrual Method Calendar Year Taxpayer

question 78

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 for advertising time 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:

Effective Capacity

The maximum output rate or service capacity an operation, process, or facility can be expected to achieve under normal conditions.

Design Capacity

The maximum output or performance level that a facility or product is engineered to achieve under ideal conditions.

Capacity Alternatives

Various options available to a business for adjusting its capacity to meet changes in demand.

Market Acceptance

The degree to which a new product, service, or innovation is embraced by potential customers or end-users in the marketplace.