Iris Collected $150,000 on Her Deceased Husband's Life Insurance Policy

question 32

Multiple Choice

Iris collected $150,000 on her deceased husband's life insurance policy.The policy was purchased by the husband's employer under a group policy.Iris's husband had included $5,000 in gross income from the group term life insurance premiums during the years he worked for the employer.She elected to collect the policy in 10 equal annual payments of $18,000 each.

• A)None of the payments must be included in Iris's gross income.
• B)The amount she receives in the first year is a nontaxable return of capital.
• C)For each $18,000 payment that Iris receives, she can exclude $500 ($5,000/$180,000 × $18,000) from gross income.
• D)For each $18,000 payment that Iris receives, she can exclude $15,000 ($150,000/$180,000 × $18,000) from gross income.
• E)None of these.

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Definitions:

Labour Rate Variance

The difference between the actual cost of labor and its expected cost based on standards set for production.

Labour Efficiency Variance

The difference between the actual labor hours used in production and the standard hours expected, multiplied by the standard labor rate.

Standard Costing

A cost accounting method that uses standard costs—the expected costs of labor, material, and overhead—to compare against actual costs.

Variable Overhead

encompasses the costs of production that vary with the level of output, such as utilities and materials, as opposed to fixed overheads.