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:

Work in Process Inventory

Represents the cost of unfinished goods in the production process, including labor, materials, and overhead.

Service Department Costs

The expenses incurred by support departments within a company that do not directly contribute to profit but provide necessary services.

Operating Departments

Sections or divisions within a business that are responsible for carrying out its core operations, as opposed to support or administrative departments.

Direct Method

A way of preparing a cash flow statement where actual cash flows from operating activities are listed directly.