William purchased a universal life policy on his own life. When his son Ben turned 25, William changed the life insured to Ben's life, and transferred ownership of the policy to Ben. The policy has a cash surrender value of $50,000 and an adjusted cost basis of $22,000. Ben took a policy loan of $10,000 for each of the next five years to travel around the world. He surrendered the policy after five years. Which of the following statements is true? O a) William would have $28,000 of taxable income as a result of the transfer. O b) Ben would have $10,000 of taxable income for each of the five years. O c) Ben would have about $5,600 of taxable income for each of the e years. O d) william would have $22,000 of taxable income as a result of the transfer.
William purchased a universal life policy on his own life. When his son Ben turned 25, William changed the life insured to Ben's life, and transferred ownership of the policy to Ben. The policy has a cash surrender value of $50,000 and an adjusted cost basis of $22,000. Ben took a policy loan of $10,000 for each of the next five years to travel around the world. He surrendered the policy after five years. Which of the following statements is true? O a) William would have $28,000 of taxable income as a result of the transfer. O b) Ben would have $10,000 of taxable income for each of the five years. O c) Ben would have about $5,600 of taxable income for each of the e years. O d) william would have $22,000 of taxable income as a result of the transfer.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
![William purchased a universal life policy on his own life. When his son Ben turned 25, William
changed the life insured to Ben's life, and transferred ownership of the policy to Ben. The policy has
a cash surrender value of $50,000 and an adjusted cost basis of $22,000. Ben took a policy loan of
$10,000 for each of the next five years to travel around the world. He surrendered the policy after
five years. Which of the following statements is true?
O a) William would have $28,000 of taxable income as a result of the transfer.
O b) Ben would have $10,000 of taxable income for each of the five years.
O c) Ben would have about $5,600 of taxable income for each of the e years.
O d) william would have $22,000 of taxable income as a result of the transfer.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fa0de0f1e-a3e4-475d-9d63-c40471119724%2F73f39db2-f7ea-423c-87a7-5dfac72474b2%2F9wx496q_processed.jpeg&w=3840&q=75)
Transcribed Image Text:William purchased a universal life policy on his own life. When his son Ben turned 25, William
changed the life insured to Ben's life, and transferred ownership of the policy to Ben. The policy has
a cash surrender value of $50,000 and an adjusted cost basis of $22,000. Ben took a policy loan of
$10,000 for each of the next five years to travel around the world. He surrendered the policy after
five years. Which of the following statements is true?
O a) William would have $28,000 of taxable income as a result of the transfer.
O b) Ben would have $10,000 of taxable income for each of the five years.
O c) Ben would have about $5,600 of taxable income for each of the e years.
O d) william would have $22,000 of taxable income as a result of the transfer.
Expert Solution
![](/static/compass_v2/shared-icons/check-mark.png)
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 2 steps
![Blurred answer](/static/compass_v2/solution-images/blurred-answer.jpg)
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
![FINANCIAL ACCOUNTING](https://compass-isbn-assets.s3.amazonaws.com/isbn_cover_images/9781259964947/9781259964947_smallCoverImage.jpg)
![Accounting](https://www.bartleby.com/isbn_cover_images/9781337272094/9781337272094_smallCoverImage.gif)
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
![Accounting Information Systems](https://www.bartleby.com/isbn_cover_images/9781337619202/9781337619202_smallCoverImage.gif)
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
![FINANCIAL ACCOUNTING](https://compass-isbn-assets.s3.amazonaws.com/isbn_cover_images/9781259964947/9781259964947_smallCoverImage.jpg)
![Accounting](https://www.bartleby.com/isbn_cover_images/9781337272094/9781337272094_smallCoverImage.gif)
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
![Accounting Information Systems](https://www.bartleby.com/isbn_cover_images/9781337619202/9781337619202_smallCoverImage.gif)
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
![Horngren's Cost Accounting: A Managerial Emphasis…](https://www.bartleby.com/isbn_cover_images/9780134475585/9780134475585_smallCoverImage.gif)
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
![Intermediate Accounting](https://www.bartleby.com/isbn_cover_images/9781259722660/9781259722660_smallCoverImage.gif)
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
![Financial and Managerial Accounting](https://www.bartleby.com/isbn_cover_images/9781259726705/9781259726705_smallCoverImage.gif)
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education