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ACCOUNTING 330 - EXAM II - SPRING 2011 Multiple Choice Identify the choice that best completes the statement or answers the question. ____ 1. Carin, a widow, elected to receive the proceeds of a $100,000 life insurance policy on the life of her deceased husband in 10 installments of $15,000 each. Her husband had paid premiums of $75,000 on the policy. In the first year, Carin collected $15,000 from the insurance company. She must include in gross income: a. $0. b. $5,000. c. $10,000. d. $15,000. e. None of the above. ____ 2. Turquoise Company purchased a life insurance policy on the companys chief executive officer, Joe. After the company had paid $400,000 in premiums, Joe died and the company collected the $1.5 million face amount of the policy. The company also purchased group term life insurance on all its employees. Joe had included $16,000 in gross income for the group term life insurance premiums. Joes widow, Rebecca, received the $100,000 proceeds from the group term life insurance policy. a. Rebecca can exclude the life insurance proceeds of $100,000, but Turquoise Company must include $1,100,000 ($1,500,000 $400,000) in gross income. b. Turquoise Company and Rebecca can exclude the life insurance proceeds of $1,500,000 and $100,000, respectively, from gross income. c. Turquoise Company can exclude $1,100,000 ($1,500,000 $400,000) from gross income, but Rebecca must include $84,000 in gross income. d. Turquoise Company must include $1,100,000 ($1,500,000 $400,000) in gross income and Rebecca must include $100,000 in gross income. e. None of the above. ____ 3. Albert had a terminal illness which required almost constant nursing care for the remaining two years of his estimated life, according to his doctor. Albert had a life insurance policy with a face amount of $100,000. Albert had paid $10,000 of premiums on the policy. The insurance company has offered to pay him $75,000 to cancel the policy, although its cash surrender value was only $60,000. Albert accepted the $75,000. Albert used $5,000 to pay his medical expenses. Albert made a miraculous recovery and lived another 20 years. As a result of cashing in the policy: a. Albert is not required to recognize any gross income because of his terminal illness. b. Albert must recognize $65,000 ($75,000 $10,000) of gross income. c. Albert must recognize $10,000 ($75,000 $60,000 $5,000) of gross income. d. Albert must recognize $75,000 of gross income, but he has $5,000 of deductible medical expenses. e. None of the above. ____ 4. A scholarship recipient at City University must include in gross income the scholarship proceeds used to pay for: a. Only tuition. b. Tuition, books, and supplies, but not meals and lodging.... View Full Document

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