Question

Carin, a widow, elected to receive the proceeds of a $150,000 life insurance policy on the life of her deceased husband in 10 installments of $17,500 each. Her husband had paid premiums of $60,000 on the policy. In the first year, Carin collected $17,500 from the insurance company She must include the gross income:

Answer 1

Answer:

$2,500

Explanation:

Carin is to receive a life insurance of $150,000 on the life of her late husband

She receives an installment of $17,500 each in 10 installments which will make a total amount of

= 10×$17,500

= $175,000

Carin's husband pays a premium of $60,000

If Carin collects $17,500 from the insurance company, then the amount of interest that she will pay on the gross income is

= $175,000-$17,500

= $25,000

The gross income the Carin will pay in the first year can be calculated as follows

= $25,000/$175,000×$17,500

= $437,500,000/$175,000

= $2,500

Hence Carin must include a gross income of $2,500