1. Carol owns and operates a retail appliance store with annual sales in excess of $12 million. The store has an extensive selection of appliances on hand. What method of tax accounting must Carols business use to account for its inventories and related sales?

1. Accrual method. c. Installment sales method.
2. Cash method. d. Completed contract method.

2. Gil is in the top income tax bracket and owns income-producing property. Gil retains ownership of the property but directs that the income be paid to his son Kevin, who is age 30 and is in a low income tax bracket. The income is paid directly to Kevin, who reports it as part of his taxable income. Gil does not report the income on his tax return. With which one of the following tax rules should Gil be most concerned about?

a. Kiddie tax. c. Constructive receipt.

b. Recovery of cost. d. Assignment of income.

3. Nare, an accrual-basis taxpayer, owns a building which was rented to Mott under a ten-year lease expiring August 31, 20X8. On January 2, 20X2, Mott paid $30,000 as consideration for canceling the lease. On November 1, 20X2, Nare leased the building to Pine under a five-year lease. Pine paid Nare $10,000 rent for the two months of November and December, an additional $5,000 for the last month's rent, and a $10,000 refundable security deposit. What amount of income should Nare report in its 20X2 income tax return?

a. $10,000 c. 40,000 d. $45,000

b. $15,000 e. $55,000