Leroy Purchased an Annuity from an Insurance Company for $42,000

question 81

Multiple Choice

Leroy purchased an annuity from an insurance company for $42,000. He has been receiving $940 monthly from the annuity. Leroy began receiving the payments when he was 72 years old and he has now received annuity payments for 13.33 years. How much of each subsequent $940 payment must Leroy include in his gross income?
I.The Capital Recovery Concept explains the result.
II.Leroy may exclude 100% of the annuity payments received.
III.Leroy must recognize 100% of the annuity payments received.
IV.Leroy will continue to recognize the same amount that he recognized in all prior years.
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• A)Only statement I is correct.
• B)Only statement III is correct.
• C)Only statement IV is correct.
• D)Only statements I and III are correct.
• E)Only statements I and IV are correct.

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Definitions:

Tolerance

The ability or willingness to tolerate something, in particular the existence of opinions or behavior that one does not necessarily agree with.

Cravings

Intense desires or urges for a specific substance, object, or experience, often associated with addiction or emotional need.

Elated Mood

A state of heightened, joyful emotion, often characterized by feelings of extreme happiness and well-being.

Reduction

The process of simplifying or decreasing something in size, amount, or extent.