1. FIFO is an example of a cost flow assumption.

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True

False

2. The avoided cost method must be used to calculate the amount of interest required to be capitalized except for personal property with an estimated production period of one year or less.

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True

False

3. Home construction contracts are exempt from the UNICAP rules if the taxpayer has three year average annual gross receipts of $25 million or less and the construction period is less than 2 years.

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True

False

4. If a taxpayer uses the standard cost method of allocating inventoriable costs, it may treat positive variances as period costs (expensed) and negative variances as inventoriable.

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True

False

5. Treasury Reg. 1.61-7(d) provides for the proceeds of a sale to be allocated first to accrued interest and then only the balance to be treated as the amount realized on the sale. By applying proceeds of a sale first to accrued interest, it is possible to have interest income and a capital loss realized on the sale.

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True

False

6. Dealers of real estate may treat real estate as inventory and determine the tax basis of the real estate under the lower-of-cost or market concept.

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True

False

7. A taxpayer with an applicable financial statement may elect to expense and not capitalize amounts paid for property not exceeding $5,000 per invoice (or per item as substantiated by the invoice).

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True

False

8. Installment sale method is mandatory for cash basis taxpayers but may only be used by accrual method taxpayers if elected.

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True

False

9. If less than 90 percent but more than 10 percent of a mixed service department's costs are capitalized service costs, the taxpayer must allocate the department's costs between deductible and capitalized costs.

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True

False

10. Taxpayers can avoid the required use of an accrual method for inventory on the sole grounds that they do not have inventories on hand at the beginning and end of the taxable year.

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True

False