Deductibility of Advertising Expenses for Ajax Computer Company

Explanation:

Ajax Computer Company is an accrual-method calendar-year taxpayer, meaning they recognize expenses when they are incurred rather than when cash is paid. In November of the current year, Ajax paid $3 million for television advertising time during a sporting event scheduled for early February of the following year and $2,500,000 for a one-time advertising blitz during a professional golf tournament in April of the following year.

Advertising Payments Deduction

Since both advertising expenses were paid in advance for events taking place in the following year, Ajax cannot deduct these amounts from their tax liability in the current year. The payments will only be considered expenses when the advertisements actually take place. Therefore, no deduction can be claimed for these advertising payments in the current year.

In conclusion, Ajax Computer Company cannot deduct the $3 million and $2,500,000 advertising payments made for events in the following year in the current tax year. The payments will be classified as expenses in the year when the advertisements are actually aired. As a result, no deduction can be claimed for these advertising expenses in the current year.