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.

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Definitions:

Cross-Sectional

A type of observational study that analyzes data collected from a population, or a representative subset, at a specific point in time.

Cognitive Skills

Mental abilities involved in processing information, understanding concepts, and solving problems through logical reasoning and thought.

Psychoanalytic Perspective

A theory of psychology that emphasizes unconscious processes and childhood experiences in shaping personality and behavior.

Freud

Refers to Sigmund Freud, an Austrian neurologist and the founder of psychoanalysis, known for his theories on the unconscious mind, sexuality, and dream interpretation.