Question

42.

Problem 2-14
Life Insurance (LO 2.6)

Sharon transfers to Russ a life insurance policy with a cash surrender value of $27,000 and a face value of $100,000 in exchange for real estate. Russ continues to pay the premiums on the policy until Sharon dies 7 years later. At that time, Russ has paid $12,000 in premiums, and he collects the $100,000 face value.

How much of the proceeds, if any, is taxable to Russ?
$

Why?
Since the policy was transferred for valuable consideration, the proceeds

a. are not taxable

b. are taxable to the extent of premiums paid

c. are taxable to the extent that they exceed the sum of the cash value at the time of transfer

d. are taxable to the extent that they exceed the sum of the cashvalue at the time of transfer plus the premiums paid.

44.

Life Insurance (LO 2.6)

Greg died on July 1, 2017, and left Lea, his wife, a $45,000 life insurance policy which she elects to receive at $9,000 per year plus interest for 5 years. In the current year, Lea receives $9,500.

How much should Lea include in her gross income?
$

46.  

Problem 2-16
Life Insurance (LO 2.6)

David is certified by his doctor as terminally ill with liver disease. His doctor certifies that he cannot reasonably be expected to live for more than a year. He sells his life insurance policy to Viatical Settlements, Inc., for $250,000. He has paid $20,000 so far for the policy.

How much of the $250,000 must David include in his taxable income?
a. 0

b. 20000

c.230000

d. 250000

48.

Problem 2-18
Gifts and Inheritances (LO 2.7)

In June of 2017, Kevin inherits stock worth $125,000. During the year, he collects $5,600 in dividends from the stock.

How much of these amounts, if any, should Kevin include in his gross income for 2017?
$

Why?
Inheritances are ___________(included in/ exluded from) taxable income and subsequent earnings on inherited property are (included in/ excluded from) income.

Answer 1

42. D. Since the policy was transferred for exchange of real asset the amount taxable = amount collected - premiums Russ paid- consideration paid at the time of transfer.

I.e. 100000-12000- amount of consideration at the time of transfer.

44. Lea receives 9000 as beneficiary from the insurance company which is not to be included In Gross income. But the interest of 500 $ is taxable in the year when it is received.

46. D. Taxable income would be 230,000$ segregated into long term capital gains and ordinary income. Upto cash surrender value from 230000 is ordinary income and above that is treated as capital gain.

48. Kevin should report dividends as income in the tax return, but not stock which is inherited. Amount to be included is 5600$

Inheritances are excluded in taxable income.

Subsequent earnings to be included in income.