Answered: The separation pay received by John is…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Due to COVID-19, Angel Corp. incurred huge losses. In order to continue its business operation, the company decided to reduce its employees by creating a redundancy program in accordance with the labor laws. It offered each employees triple the amount of their separation pay. Michael, one of the employees of Angel Corp accepted the offer of the company. After several months, the company is still experiencing huge losses, thus it filed a bankruptcy. John, one of the employees of Angel Corporation, was terminated by the company as a result of its bankruptcy. He received his separation pay in accordance with the labor laws.

The separation pay received by John is considered as:

Group of answer choices

b. Exclusions from Gross Income

e. None of the Above

a. Inclusions in / Items of Gross Income

c. Capital gains subject to capital gains tax

d. Passive income subject to final tax

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