For each of the following cases, respond to the question and indicate the accounting principle or concept that applies.
1. Mike Beasley buys and sells real estate. On December 31, 2016, his inventory of property included a tract of undeveloped land for which he had paid $800,000. The fair market value of the land was $900,000 at that date. How much income should Beasley report for 2016 in connection with this land? Why?
2. Hubbard Building Company signed a contract with a customer on November 1, 2016. The contract called for construction of a building to begin by December 31, 2016, and to be completed by December 31, 2017. The contract price was $8.0 million. Hubbard estimated that the building would cost $5 million. On November 15, 2016, the customer was required to make an advance payment of $1,000,000. No work was done on the project until January 2017. How much income from the project should Hubbard report in 2016? Why?
3. Martinez, LLC, paid insurance premiums of $7,200 on December 1, 2016. These premiums covered a two-year period beginning on that date. What amount, from this payment, should the corporation show as insurance expense for the year 2016? What accounting principles, conventions, or assumptions support your answer?