In 2011,Todd Purchased an Annuity for $200,000

question 57

Multiple Choice

In 2011,Todd purchased an annuity for $200,000.The annuity is to pay him $2,500 per month for the rest of his life.His life expectancy is 100 months.Which of the following is correct?

• A) Todd is not required to recognize any income until he has collected 80 payments (80 ´ $2,500 = $200,000).
• B) If Todd collects 30 payments and then dies in 2013, Todd's estate should amend his tax returns for 2011 and 2012 and eliminate all of the reported income from the annuity for those years.
• C) For each $2,500 payment received in the first year, Todd must include $2,000 in gross income.
• D) For each $2,500 payment received in the first year, Todd must include $500 in gross income.
• E) None of the above.

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Definitions:

Marginal Cost

The cost associated with producing an additional unit of output, significant in decision-making processes related to production levels.

Market Price

The current price at which an asset or service can be bought or sold, determined by supply and demand in the marketplace.

Economic Profit

The gap between the complete earnings and the overall expenditure, covering both overt and hidden costs.

Output

The quantity of goods or services produced within a given time period.