David Has Been Diagnosed with Cancer and Is Expected to Live

question 51

Multiple Choice

David has been diagnosed with cancer and is expected to live less than 18 months.David is covered by a life insurance policy with a $400,000 face amount.David cashes in the policy early under a special option and receives 80% of the face amount or $320,000.In the year of collection,David will report

• A)no income.
• B)$80,000.
• C)$320,000.
• D)$400,000.

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Definitions:

External Financing

Funds raised from outside the business, e.g., through borrowing or issuing equity.

Debt-equity Ratio

The ratio reflecting on the strategic use of shareholders' equity and debt for the purpose of financing assets.

Growth Rate

The rate at which a company's earnings or revenue increases over a specified period, typically expressed as a percentage.

Retained Earnings

The portion of a company's profit that is held back and not paid out as dividends, often used for reinvestment.