Question

Susan purchased an annuity for $200,000. She is to receive $18,000 each year and her life expectancy is 13 years. If Susan collects under the annuity for 14 years, the entire $18,000 received in the 14th year must be included in her gross income. What is the total amount of gross income Susan will have to report for the 14th year?

Answer 1

The total amount of gross income Susan will have to report for the 14th year is $252,000.

Step-by-step explanation:

To calculate the total amount of gross income that Susan will have to report for the 14th year, we need to determine the amount of annuity she has already received in the previous 13 years and add it to the $18,000 she receives in the 14th year but is required to include in her gross income. Since Susan receives $18,000 each year for 13 years, the total amount of annuity she has received in the previous years is $18,000 multiplied by 13, which equals $234,000. So the total amount of gross income Susan will have to report for the 14th year is $234,000 + $18,000, which equals $252,000.