R4 - Appendix

Question 1

The general rule is that all tangible property that is not inventory must be what?

Answer 1

Capitalized unless there is an exception

Question 2

Generally an item that costs _____ or less or has an economic life of 12 months or less qualifies as materials and supplies.

Answer 2

$200

Question 3

If the tangible property qualifies as materials and supplies, can it be deducted in the year of consumption if non-incidental, or in the year paid if incidental?

Answer 3

YES

Question 4

What is defined as incidental materials and supplies?

Answer 4

Those for which no inventories or records of consumption are kept

Question 5

True or false.

Amounts paid or incurred to produce or acquire tangible and intangible property must be capitalized.

Answer 5

True

Question 6

Capitalized or expensed:

Indirect costs, such as otherwise deductible repair or removal costs, that directly benefit or are incurred by reason of an imrpovement

Answer 6

Capitalized

Question 7

Capitalized or expensed:

Indirect costs that do not directly benefit and are not incurred by reason of an improvement

Answer 7

Expensed

Question 8

What does UOP stand for?

Answer 8

Unit of property

Question 9

What is defined as all components that are functionally interdependent?

Answer 9

A single unit of property

Question 10

Capitalized or expensed:

Amounts paid or incurred for acquiring, creating, or enhancing intangible property

Answer 10

Capitalized

Question 11

True or false.

Improvements to a single unit of property must be capitalized if they result in a betterment to the property, adapt the property to a new or different use, or result in a restoration of the property.

Answer 11

True

Question 12

Is a gas distribution system considered a designated building system separate from the building structure?

Answer 12

YES

Question 13

ABC Corporation has an applicable financial statement and at the beginning of Year 1 has a written accounting policy to expense amounts paid for tangible property costing up to $5,000. During Year 1, ABC pays $32,000 for 8 desks. How much may ABC deduct under the de minimis rule in Year 1?

Answer 13

$32,000 in Year 1

EXPLANATION: The cost of $4,000 per desk ($32,000/8) is below the $5,000 per item threshold.

Question 14

Does routine maintenance include amounts paid or incurred for the repair of damage to the unit of property that has been taken as a basis adjustment as a result of a casualty loss?

Answer 14

NO

Question 15

Qualifying small taxpayers can expense costs related to an eligible building if they do not exceed the lesser of 2 percent of unadjusted basis of the building or $_______.

Answer 15

$10,000

Question 16

Will amounts deducted under the de minimis or routine maintenance rules count toward the $10,000 limit?

Answer 16

Yes

Question 17

What is defined as a taxpayer with average annual gross receipts of $10 million or less during the three preceding tax years?

Answer 17

Qualifying small taxpayer

Question 18

An eligible building is any building with an unadjusted basis that does not exceed $______.

Answer 18

$1 million

Question 19

Inherited assets automatically receive ______ treatment.

Answer 19

long-term

Question 20

What is the MACRS life?

Office furniture purchased on January 4 for $200k

Answer 20

7 years

Question 21

What is the MACRS life?

A computer purchased on March 10 for $100,000

Answer 21

5 years

Question 22

What is the MACRS life?

A building was purchased and used as residential rental property

Answer 22

27.5 years

Question 23

What is the MACRS life?

A building was purchased and used as office space

Answer 23

39 years

Question 24

Sold 200 shares of Y Corp. stock at $14 per share. Green received the 200 shares as a gift from his brother, three years ago, at the time that the shares had a FMV of $10 per share. Green’s brother purchased the stock for $16 per share. Gain or loss = ?

Answer 24

$0

EXPLANATION: If at the date of the gift, the gift’s FMV is less than the donor’s basis and if the donee later sells the gift for a price which is greater than the date-of-gift FMV, but which is lower than the donor’s basis, the taxpayer-donee recognizes neither a gain or a loss on the sale.

Question 25

Sold 200 shares of Y Corp. stock at $22 per share. Green received the 200 shares as a gift from his brother, three years ago, at the time that the shares had a FMV of $26 per share. Green’s brother purchased the stock for $16 per share. Gain or loss = ?

Answer 25

$1200

EXPLANATION: If at the time of a gift the FMV of the gift is greater than the donor’s basis, then when the donee subsequently sells the gift, the donee uses the donor’s basis (rollover cost basis) to determine gain or loss.

Question 26

Sold 450 shares of Z Corp. stock at $40 per share. Green received the 450 shares from his aunt’s estate as a bequest. The FMV of the stock at the date of his aunt’s death was $32 per share and did not change in the subsequent year. His aunt originally purchased the stock for $20 per share. Gain or loss = ?

Answer 26

$3,600

EXPLANATION: Unless the estate validly elects the alternative valuation date, property acquired by bequest or inheritance takes as its basis the FMV of the property as the date of the decedent’s death.