McGraw-Hill's Taxation of Individuals and Business Entities 3rd Edition by Brian Spilker, Benjamin Ayers, John Robinson, Edmund Outslay, Ronald Worsham, John Barrick, Connie Weaver

Exercise 59

Anne purchased an annuity from an insurance company that promised to pay her $20,000 per year for the next ten years.Anne paid $145,000 for the annuity, and in exchange she will receive $200,000 over the term of the annuity.
a.How much of the first $20,000 payment should Anne include in gross income?
b.How much income will Anne recognize over the term of the annuity?