McGraw-Hill's Taxation of Individuals and Business Entities 3rd Edition by Brian Spilker, Benjamin Ayers, John Robinson, Edmund Outslay, Ronald Worsham, John Barrick, Connie Weaver

Exercise 35

Circuit Corporation (CC) is a calendar-year, accrual-method taxpayer.CC manufactures and sells electronic circuitry.On November 15, year 0, CC enters into a contract with Equip Corp (EC) that provides CC with exclusive use of EC's specialized manufacturing equipment for the five-year period beginning on January 1 of year 1.Pursuant to the contract, CC pays EC $1,000,000 on December 30, year 0.How much of this $1,000,000 expenditure is CC allowed to deduct in year 0 and in year 1?