Question

6) Arnold was employed during the first six months of the year and earned a $90,000 salary. During the next six~months, he collected $7,200 of unemployment compensation, borrowed $6;000 (using his personal residence as collateral), and withdrew $1,000 from his savings account (including $50 interest). When he left his former employer, he withdrew his retirement benefits (a qualified annuity) in a lump sum of$60,000. He made no contributions to the plan. Arnold's parents loaned him $10,000 (interest-free) on July 1, of the current year, when the Federal rate was 3%. Arnold did not repay the loan during the year and used the money for living expenses. Calculate Arnold's adjusted gross income for the year.

Answer 1

Answer:

The adjusted gross income has been calculated with the use of following table:

Salary	90,000
Unemployment Compensation	7,200
Interest Income	50
Retirement Benefit	60,000
Adjusted Gross Income	$157,250

Notes:

The interest-free loan will not be included in adjusted gross income as interest free loan of upto $10,000 from parents is exempt if the same has not been used for income generation purposes. In the given case, the loan is used by Arnold for paying living expenses and will, therefore, not be considered as a part of adjusted gross income.