Problem:
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.
Required:
Question 1: How much of the first $20,000 payment should Anne include in gross income? (Do not round intermediate calculations.)
Question 2: How much income will Anne recognize over the term of the annuity?
Note: Explain all calculation and formulas.