Question

Damon's Lawn and Garden Supply, an accrual basis taxpayer, is the exclusive dealer for Tru-Cut lawn mowers. In 2019, Damon's agrees to pay the Dash Corporation, the manufacturer of Tru-Cut, an additional $15 per lawn mower. In exchange, the Dash Corporation will provide advertising and promotion to Damon's for a 2-year period. Damon's purchases and pays for 200 lawn mowers in 2019 and 350 lawn mowers in 2020. The Dash Corporation pays $2,750 for advertising and promotion in 2019 and $5,500 in 2020. Refer to the Economic Performance Tests to answer the following questions. How much of the amount paid to the Dash Corporation for advertising and promotion can Damon’s deduct in 2019? in 2020?

Answer 1

Step-by-step explanation:

Determine how much of the amount paid to corporation D for advertising and promotional services can D lawn and Garden Supply deduct in 2019

(200 lawn x $15) receives $3,000 for advertising and promotion from D lawn and Garden Supply; however corporation D spent only $2,750

Thus D lawn and Garden Supply can only deduct $2750 because economic performance for services occur when the services are provided to the taxpayer.

Determine how much of the amount paid to corporation D for advertising and promotional services can D lawn and Garden Supply deduct in 2020

(350 lawn x $15) receives $5,250 for advertising and promotion from D lawn and Garden Supply; however corporation D spent only $5,500

However, D lawn and Garden Supply can deduct $5,500 for promotion expense, which includes $5,250 paid in 2020 and $250 paid in 2019