How much of the first payment should Larry include in gross income? Retum to que

Question

How much of the first payment should Larry include in gross income?

Retum to question Required information The following information applies to the questions displayed below] Larry purchased an annuity from an insurance company that promises to pay him $1,600 per month for the rest of his life. Larry paid $182,208 for the annuity. Larry is in good health and he is 72 years old. Larry received the first annuity payment of $1,600 this month. Use the expected number of payments in Exhibit 5-1 for this problem. (Round "Expected return multiple" answer to 1 decimal place and all other answers to the nearest whole number) a. How much of the first payment should Larry include in gross income? Answer is complete but not entirely correct. Amount to be included in gross income

Explanation / Answer

Expected return multiple based on age group (age 72) = 14.60

Expected total payment= Expected return multiple* numberof months in a year* AMount per month

         = 14.6 *12* 1600

          = 280320

Return of capital % = Amount invested / Total payment

           = 182208/280320

             = .65 or 65%

capital Return as to amount received per month =1600 *65% = 1040

Amount to include in gross income = Amount received - capital return

                       = 1600 -1040

                    = 560

Amount included in gross income = 560

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