Anne purchased an annuity from an insurance company that promised to pay her $20,000 per year for the next 10 years. Anne paid $145,000 for the annuity, and in exchange she will receive $200,000 over the term of the annuity. a.) How much of the first $20,000 payment should Anne include in gross income? (Do not round intermediate calculations.) Amount to be included $ b.) How much income will Anne recognize over the term of the annuity? Income Recognized $
Anne purchased an annuity from an insurance company that promised to pay her $20,000 per year for the next 10 years. Anne paid $145,000 for the annuity, and in exchange she will receive $200,000 over the term of the annuity. a.) How much of the first $20,000 payment should Anne include in gross income? (Do not round intermediate calculations.) Amount to be included $ b.) How much income will Anne recognize over the term of the annuity? Income Recognized $
Chapter4: Gross Income: Concepts And Inclusions
Section: Chapter Questions
Problem 17DQ
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Question
Anne purchased an annuity from an insurance company that promised to pay her $20,000 per year for the next 10 years. Anne paid $145,000 for the annuity, and in exchange she will receive $200,000 over the term of the annuity.
a.) How much of the first $20,000 payment should Anne include in gross income? (Do not round intermediate calculations.)
| Amount to be included | $ |
b.) How much income will Anne recognize over the term of the annuity?
| Income Recognized | $ |
Expert Solution
Amount to be included in gross income
Each cash flow of $20,000 represents two amounts, one is return of original investment and one is income on investment. The income portion of the cash flow will be included in gross income.
Amount to be included in gross income is $5,500.
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ISBN:
9780357109731
Author:
Hoffman
Publisher:
CENGAGE LEARNING - CONSIGNMENT