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Unformatted text preview: prior periods 2008 2009 2010 2011 total Life insurance premiums paid (87,500) (3,500) (3,500) (3,500) (3,500) (101,500) (nondeductible) Increase in cash surrender value 17,200 1 700 700 700 700 20,000 (a noncurrent asset) Net E&P adjustment (10,700) (2,800) (2,800) (2,800) (2,800) (81,500) Assume a key executive dies in 2011 Corporation collects face value of policy 130,000 Less: Cash surrender value (20,000) Net E&P adjustment 110,000 Notes: (1) ($700 x 24 years) + $400 partial year = $17,200 Prior period adjustment to make the numbers work with problem 27. Note: The key-man life insurance policy is roughly 28-29 years old. (2) With whole life insurance, a portion of each premium payment is invested on behalf of the insured company in a fixed-income investment. The policy can be surrender while the insured is still alive in exchange for the cash surrender value (CSV). Only the net premium payment is expensed for book purposes (GAAP), representing the cash outflow less the increase in the noncurrent asset that builds up...
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This note was uploaded on 09/09/2011 for the course TAX 5015 taught by Professor Kelliher,c during the Spring '08 term at University of Central Florida.
- Spring '08