PRACTICE QUIZ – CHAPTER 4
1) Bette is beneficiary of a $80,000 insurance policy on her father's life. Upon his death, she may
elect to receive the proceeds in five yearly installments of $17,500 or may take $80,000
She elects to take the $80,000 lump sum payment.
What are the tax
consequences in year one?
All $17,500 each year is taxable.
$7,500 interest is taxable in the first year.
There is no taxable income.
$1,500 of the $17,500 payment is taxable each year.
2) Hope receives a $8,500 per year scholarship from State University.
The university specifies
that $5,500 is for tuition, books, supplies, and equipment, while $3,000 is for room and
In addition, Hope works parttime at the campus library and earns $5,000 to cover
Hope’s gross income is
3) Liza's employer purchased a disability income policy from an insurance company on behalf of
all of its employees.
The employer paid for twothirds of the premiums, and the