31. LO.1, 2 Determine Amos's gross income in each of the following cases: In the current year, Amos purchased an automobile for $25,000. As part of the transaction, Amos received a $1,500 rebate from the manufacturer. Amos sold his business. In addition to the selling price of the stock, he received $50,000 for a covenant not to compete-an agreement that he will not compete with his former business for five years. Amos owned some land he held as an investment. As a result of a change in the zoning rules, the property increased in value by $20,000. a. b. C. 32. LO.2,5 Al is a medical doctor who conducts his practice as a sole proprietor. Dur Decision Making ing 2018, he received cash of $280,000 for medical services. Of the amount collected, $40,000 was for services provided in 2017. At the end of 2018, Al had accounts receivable of $60,000, all for services rendered in 2018. In addition, at the end of the year, Al received $12,000 as an advance payment from a health mainte- nance organization CHMO) for services to be rendered in 2019. Compute Al's gross income for 2018: a. b. c. Using the cash basis of accounting. Using the accrual basis of accounting. Advise Al on which method of accounting he should use. 3. LO.2 Selma operates a contractor's supply store. She maintains her books using the cash method. At the end of the year, her accountant computes her accrual basis income that is used on her tax return. For 2018, Selma had cash receipts of $1.4 million, which included $200,000 collected on accounts receivable from 2017 sales. It also included the proceeds of a $100,000 bank loan. At the end of 2018, she had $250,000 in accounts receivable from customers, all from 2018 sales. a. Compute Selma's accrual basis gross receipts for 2018. b. Selma paid cash for all of the purchases. The total amount paid for merchandise in 2018 was $1.3 million. At the end of 2017, she had merchandise on hand with a cost of $150,000. At the end of 2018, the cost of merchandise on hand was $300,000. Compute Selma's gross income from merchandise sales for 2018. S. 1023.3 Your dleper mehandise o 3, 5 Your client is a partnership, ARP Associates, which is an engineering Decision Making at the end of each Communications consulting firm. Generally, ARP bills clients for services month. Client billings are about $50,000 each month. On average, it takes 45 days to collect the receivables. ARP's expenses are primarily for salary and rent. Salaries are paid on the last day of each month, and rent is paid on the first day of each month. The partnership has a line of credit with a bank, which requires monthly financial statements. These must be prepare partner, Amanda Sims, has suggested that the firm also use the accrual method for d using the accrual method. ARP's managing