Swan Finance Company, an Accrual Method Taxpayer, Requires All of Its

question 51

Multiple Choice

Swan Finance Company, an accrual method taxpayer, requires all of its customers to carry credit life insurance.If a customer dies, the company receives from the insurance company the balance due on the customer's loan.Ali, a customer, died owing Swan $1,500.The balance due included $200 accrued interest that Swan has included in income.When Swan collects $1,500 from the insurance company, Swan:

• A)Must recognize $1,500 income from the life insurance proceeds.
• B)Must recognize $1,300 income from the life insurance proceeds.
• C)Does not recognize income because life insurance proceeds are tax-exempt.
• D)Does not recognize income from the life insurance because the entire amount is a recovery of capital.
• E)None of these.

---

Definitions:

Business Letter

A formal document used for communication between companies, or between a company and an individual, often following a standard format.

Confidential

Information or documents that are private, sensitive, and intended to be kept secret or only shared with select individuals.

Persuasive Skills

The ability to convince or influence others to accept a particular viewpoint, buy a product, or take a specific action through logical argumentation, emotional appeal, or ethical presentation.

Corporate World

This term refers to the collective environment and culture of businesses and corporations, often emphasizing their practices, competitions, and structures.