Ed is the beneficiary of a $20,000 insurance policy on the life of his mother. Because Ed

Question:

Ed is the beneficiary of a $20,000 insurance policy on the life of his mother. Because Ed needs funds, he sells the policy to his sister, Amy, for $6,000. Amy subsequently pays premiums of $9,000.
a. How much income must Amy report if she collects the face value of the policy upon the death of her mother?
b. Would Amy have to report any income if her brother had given her the policy? Assume the only payment she made was $9,000 for the premiums.

Face Value
Face value is a financial term used to describe the nominal or dollar value of a security, as stated by its issuer. For stocks, the face value is the original cost of the stock, as listed on the certificate. For bonds, it is the amount paid to the...