Question

Please help to explain for the below questions

97. Betty purchased an annuity for $24,000 in 2015. Under the contract, Betty will receive $300 each month for the rest of her life. According to the actuarial estimates, Betty will live to receive 96 payments and will receive a 3% return on her original investment.
a. If Betty collects $3,000 in 2015, her gross income is $630 (.03 × $21,000).
b. Betty has no gross income until she has collected $24,000.
c. If Betty lives to collect more than 96 payments, all of the amounts collected after the 96th payment must be included in taxable income.
d. If Betty lives to collect only 60 payments before her death, she will report a $6,000 loss from the annuity [$24,000 – (60 × $300) = $6,000] on her final return.
e. None of these.

98. Gordon, an employee, is provided group term life insurance coverage equal to twice his annual salary of $125,000 per year. According to the IRS Uniform Premium Table (based on Gordon’s age), the amount is $12 per year for $1,000 of protection. The cost of an individual policy would be $15 per year for $1,000 of protection. Since Gordon paid nothing towards the cost of the $250,000 protection, Gordon must include in his 2015 gross income which of the following amounts?
a.$1,350.
b.$2,400.
c.$3,000.
d.$3,750.
e.None of these.

99. Green, Inc., provides group term life insurance for all of its employees. The coverage equals twice the employee’s annual salary. Sam, a vice-president, worked all year for Green, Inc., and received $200,000 of coverage for the year at a cost to Green of $1,500. The Uniform Premiums (based on Sam’s age) are $.25 per month for $1,000 of protection. How much must Sam include in gross income this year?
a. $0.
b. $375.
c. $450.
d. $600.
e. None of these.

100. Turner, Inc., provides group term life insurance to the officers of the corporation only. Janet, a vice-president, received $450,000 of coverage for the year at a cost to Turner, Inc. of $5,600. The Uniform Premiums (based on Janet’s age) are $15 a year for $1,000 protection. How much of this must Janet include in gross income this year?
a. $0.
b. $2,700.
c. $5,600.
d. $6,000.
e. None of these.

Answer 1

Answer 97: Option C is the answer.

According to the rule if the annuitant lives longer than his or her actuarial life expectancy, annuity payments received after that age are taxable. After the 96th payment she starts earning money from the promised amount in return of investment in the equity hence the Taxation after the 96th payment.

Answer 98: Option B is the answer.

Uniform premium table amount for Gordon is $200000 ($250000(twice the annual salary) -$50000 exclusion amount))

for $1000 amount $12 is the protection amount

Total payment would be $200000/$1000 * $12 = $2,400

Answer 99: Option C is the answer.

Like last question here as well Sam must include in his gross income the uniform premium amount in excess to $50000

0.25*12*((200000-50000)/1000)

= $450

Answer 100: Option D is the answer.

Again remove $50000 excess from the gross amount and calculate

$15*(($450000-$50000) /$1000) = $6000