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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?

$\$1\textup{,}400$

$\$6\textup{,}100$

$\$1\textup{,}100$

$\$1\textup{,}500$

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Flashcards: Accounting

Your answer:

$\$1\textup{,}400$

Your answer:

$\$6\textup{,}100$

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

The Beta Company—consignee—paid the freight costs for goods shipped from the Foxtrot Incorporated—consigner. The freight costs are to be deducted from the Beta Company's payment to the Foxtrot Incorporated when the goods are sold. Until the Beta Company sells the goods, the freight costs should be included in which of the following?

Cost of goods sold

Freight-out costs

Accounts receivable

Selling expense

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Flashcards: Accounting

Your answer:

Cost of goods sold

Your answer:

Freight-out costs

Your answer:

Selling expense

Correct answer:

Accounts receivable

Explanation:

In a consignment, the manufacturer—Foxtrot Incorporated—is known as the consignor and the retailer is the consignee—Beta Company. In this type of arrangement, title to the goods remains with the manufacturer until they are sold to a third or unrelated party; thus, the Beta Company's payment of reimbursable freight costs results in an account receivable from Foxtrot Incorporated.

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Flashcards: Accounting

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All Accounting Resources

Flashcards: Accounting

Flashcards: Accounting

Flashcards: Accounting

Flashcards: Accounting

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Complaint Details

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