Reference no: EM131822100

Assignment

Problem 1:

What amount, if any, must be included in gross income by the following individuals?

1. Ann received $2,500 from her insurance company when her car which cost $3,500 was stolen.

2. Barry received $3,500 from his brother. Barry had initiated a lawsuit against his brother in an effort to recover $3,500 he had previously loaned to him. The brother paid Barry back before the case was tried, and Barry dropped the lawsuit.

3. Cheryl, an accountant, sued a client in order to collect her fee for doing tax work. Would Cheryl's accounting method make any difference?

4. Darryl has incurred $7,000 of medical expenses so far this year. He paid $500 of the expenses himself. His insurance company paid $4,500 of the expenses. The hospital is suing Darryl and the insurance company for the balance, $2,000.

Problem 2:

Which of the following is includable in gross income?

1. Frank appeared on a TV quiz show and received a prize of $6,000.

2. George received $600 from his employer because he developed an idea that reduced the employer's production costs.

3. Helen borrowed $700 from her mother to finance her last year in college. Upon graduation, her mother told her she did not have to repay the $700 as she intended the amount to be a graduation present.

Problem 3:

Diane is the beneficiary of a $70,000 insurance policy on the life of her mother, Juanita. To date, Juanita has paid premiums of $20,000. What amount of gross income must be reported in each of the following cases?

1. Juanita cancels the policy and received $25,000, the cash surrender value of the policy.
2. Juanita dies and Diane receives the face amount of the policy, $70,000.
3. Juanita dies and Diane elects to receive $20,000 per year for four years.