A is corrent. The requirement is to determine the amount of dividend income that should be reported by Gail Judd. The $100 dividend on Gail’s life insurance policy is treated as a reduction of the cost of insurance (because total dividends have not yet exceeded cumulative premiums paid) and is excluded from gross income. Thus, Gail will report the $300 dividend on common stock and the $500 dividend on preferred stock, a total of $800 as dividend income for 2012.
B is incorrect. The dividend on the bank’s stock is taxable.
C is incorrect. The life insurance dividend is treated as a nontaxable reduction of the cost of insurance.
D is incorrect. The dividend on the preferred stock is taxable.
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