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Flashcards: Accounting

Jack Snell named his wife—Angelica—the beneficiary of a $\$150\textup{,}000$ (face amount) life insurance policy. According to this policy, upon Jack's death, the proceeds would be paid to Angelica with interest over her current life expectancy. If Angelica's life expectancy was was calculated to be thirty years and she received a payment of $\$6\textup{,}100$ from the insurance company, then what amount should she include in her gross income for that year?

$\$1\textup{,}100$

$\$6\textup{,}100$

$\$1\textup{,}400$

$\$1\textup{,}500$

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Flashcards: Accounting

Your answer:

$\$6\textup{,}100$

Your answer:

$\$1\textup{,}400$

Your answer:

$\$1\textup{,}500$

Correct answer:

$\$1\textup{,}100$

Explanation:

Let's start by calculating the principle amount of the policy to be received every year.

$\frac{\textup{Principle amount of the policy}}{\textup{Number of annual payments}}$

$\frac{\$150,000}{30}=\$5,000$

In order to calculate the gross income to be reported, subtract this amount from the annual installment.

$\$6,100-\$5,000=\$1,100$

Flashcards: Accounting

All of the following conditions except which of the following must be met in order for an employer to accrue liability for employee compensation for future absences?

The employer's obligation is related to employee's rights to receive compensation for future absences is attributable to the employee's services already rendered

Payment of the compensation is probable

The employer's obligation is related to employee's rights to receive compensation for previous absences is attributable to the employee's services already rendered

The obligation relates to rights that vest or accumulate

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Flashcards: Accounting

All of the following conditions except which of the following must be met in order for an employer to accrue liability for employee compensation for future absences?

Your answer:

The employer's obligation is related to employee's rights to receive compensation for future absences is attributable to the employee's services already rendered

Your answer:

Payment of the compensation is probable

Your answer:

The obligation relates to rights that vest or accumulate

Correct answer:

The employer's obligation is related to employee's rights to receive compensation for previous absences is attributable to the employee's services already rendered

Explanation:

In relation to compensated absences, the knowledge of the conditions that must be met in order to accrue loss contingency is helpful in accounting for compensated absences such as vacation, sick pay, and leave. In order for an employer to accrue liability for employee's compensation for future absences, several conditions must be met. These conditions include the following: the employer's obligation is related to employee's rights to receive compensation for future absences is attributable to the employee's services already rendered; the obligation relates to rights that vest or accumulate; payment of the compensation is probable; and the amount can be reasonably estimated.

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Flashcards: Accounting

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HIGH SCHOOL

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All Accounting Resources

Flashcards: Accounting

Flashcards: Accounting

Flashcards: Accounting

Flashcards: Accounting

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DMCA Complaint

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Complaint Details

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