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:

Question

Quizplus · Accepted Answer

The disallowance of deductions for advertising expense is a change in tax law that was not in effect at the time Jolsen signed the contract. This represents tax law uncertainty, which caused Jolsen to underestimate the after-tax cost of the contract.

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