In 2010,Todd Purchased an Annuity for $180,000

question 106

Multiple Choice

In 2010,Todd purchased an annuity for $180,000.The annuity is to pay him $2,000 per month for the rest of his life.His life expectancy is 150 months.Which of the following is correct?

• A)Todd is not required to recognize any income until he has collected 90 payments (90 * $2,000 = $180,000).
• B)If Todd collects 30 payments and then dies in 2012,Todd's estate should amend his tax returns for 2010 and 2011 and eliminate all of the reported income from the annuity for those years.
• C)For each $2,000 payment received in the first year,Todd must include $1,200 in gross income.
• D)For each $2,000 payment received in the first year,Todd must include $800 in gross income.
• E)None of the above.

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Definitions:

Weighted Average

A calculation that takes into account the varying degrees of importance of the numbers in a data set, giving more weight to some values.

Ordinary Shares

Equity securities representing ownership in a company, giving the shareholder voting rights and a share in the company's profits through dividends.

Dilutive Potential

The possibility that the issuance of additional securities could decrease earnings per share or decrease an ownership interest.

After-tax Effect

The impact of taxes on a company's financial transactions, typically focusing on the net result after accounting for the taxation impact.