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85. Edna, 63, is a widow and works for Rhododendron Corporation. Her annual salary
is $40,000. Rhododendron provides the following benefits to all employees:
• Medical insurance—The cost of Edna’s policy is $1,800. She incurs $950 in valid
medical expenses and is reimbursed for $760 of the expenses by the company policy.
• Group term life insurance—Each employee is provided with $90,000 worth of
coverage under the policy.
• Qualified pension plan—Rhododendron matches employee contributions up
to $2,000. Edna contributes 8% of her salary to the plan.
Edna has the following other items that may affect her current-year taxes:
a. She receives $125 per month from a qualified annuity. The annuity cost
$9,100. Edna is to receive the annuity for life. She began receiving the payments in January, when her life expectancy was 15 years.
b. She receives a $200 refund of last year’s state income taxes during the current
year. Last year, her itemized deductions totaled $6,900. In the current year,
Edna’s itemized deductions are $4,300.
c. She has a separate medical policy she purchased to cover costs that her
employer-provided policy does not cover. She pays $1,400 for the policy,
which reimburses her for $350 of her medical expenses.
d. She owns 6% Puerto Rico bonds with a face value of $40,000. The bonds pay
interest annually on December 20.
e. She sells stock she owned for $20,000 on July 1. She had paid $26,000 for the
stock three years earlier. Edna invests the proceeds from the sale of the stock
in a money-market savings account that pays 4% interest.
f. Her brother dies and leaves her the farm he had inherited from their father.
The farm is valued at $160,000. Edna leases the farm to a local farmer and
receives $8,000 in rent during the current year.
g. On April 1, she gives $5,000 of Kao Corporation bonds she owns to her
granddaughter. The bonds pay annual interest of 8% on December 31.
h. She receives a watch worth $300 from Rhododendron for her twenty years of
loyal service. Rhododendron does not routinely give out length-of-service awards.
i. She sells land that she had held as an investment for $19,000 on October 1.
She had paid $17,000 for the land two years earlier. Edna invests the proceeds
in state of Oregon bonds that pay 4% interest annually on December 31.
Compute Edna’s gross income, adjusted gross income, taxable income, and her
income tax liability. Edna has no dependents.