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Home work-Chapter 3.
Prepare your solutions for this homework before the chapter is covered in class. Note:
answers may be rounded to nearest dollar. The current year is 2011. (Congress is expected to make many changes to the
law in 2011. We don't know what rules will be changed – Use tax law in your 2012 edition of the textbook).
Ann earned a salary of $40,000 from Big Bank. Ann also received:
medical insurance costing the Big
Bank $8,000 and
child care worth $4,000 for her 3-year-old child at the on-site Big Bank child care center.
Ann was among the top executives in getting new business and received a check for $1,000 Myrtle Beach Golf
paid for by Big Bank.
What is the amount of gross income that Ann will report for her work for Big Bank?
December 31, 2011,
Bo bought an annuity
for $50,000. The annuity begins payment of $1,000 per
month in January, 2012, and will pay $1,000 monthly to Bo as long as he lives. Bo had a life expectance of 5
years on January 1, 2012. How much of the $12,000 received in 2012 should be included in Bo’s income?
Jose is the beneficiary of a $100,000 insurance policy on his wife's life.
Jose elects to receive $12,000 per year for 10 years rather than receive $100,000 in a lump sum.
In effect, Jose is buying an annuity. Of the amount received each year
$12,000 is tax free.
$12,000 is taxable income.
$5,000 per year is tax free as a death benefit
$2,000 is tax free
$2,000 is taxable.
Penelope purchased an annuity contract that cost $45,000. The contract will pay Penelope $600 per month
for 10 years after she reaches age 62. During the current year, Penelope turns 62 and receives 4 payments
under the contract. Penelope's taxable income from the annuity payments is:
Martin purchased an annuity contract at the beginning of 2001 for $84,000. The contract specifies that he
will receive $2,000 per month for life. Martin receives his first payments on July 1, 2008, when he was 67
years old. Martin dies on August 15, 2014. (the August payment was received prior to his death) when a bolt
of lightning strikes him. What amount, if any, should be deducted on Martin's 2014 tax return as a result of
failing to receive his expected return on the annuity contract?
A $54,400 loss can be claimed as a deduction on his final return.
A $50,400 loss can be claimed as a deduction on his final return.
A $1,600 loss can be claimed as a deduction on his final return.
No loss is reported because a decedent is not required to file a final return.