Betty Purchased an Annuity for $24,000 in 2012

question 107

Multiple Choice

Betty purchased an annuity for $24,000 in 2012.Under the contract, Betty will receive $300 each month for the rest of her life.According to the actuarial estimates, Betty will live to receive 96 payments and will receive a 3% return on her original investment.

• A)If Betty collects $3,000 in 2012, her gross income is $630 (.03 ´ $21,000).
• B)Betty has no gross income until she has collected $24,000.
• C)If Betty lives to collect more than 96 payments, all of the amounts collected after the 96th payment must be included in taxable income.
• D)If Betty lives to collect only 60 payments before her death, she will report a $6,000 loss from the annuity [$24,000 - (60 ´ $300) = $6,000] on her final return.
• E)None of the above.

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Definitions:

Principals

The main parties involved in a business transaction or agreement, usually responsible for entering into a contract.

Agent

An individual or entity authorized to act on behalf of another (the principal) in transactions or other matters.

Duty Of Obedience

The requirement for directors and officers of an organization to act in accordance with its goals and directives.

Clearly Stated

Expressed in a manner that leaves no doubt about the meaning or intentions.