Accounting Question West LA College Accounting 015 Spring 2021 Midterm Exam Question 21

Donovan was in an automobile accident while he was going to work. The doctor advised him to stay home for eight months due to his physical injuries. The resulting lawsuit was settled and Donovan received the following amounts:

Compensatory damages for physical injury $30,000
Punitive damages 55,000

How much of the settlement must Donovan include in ordinary income on his tax return?

a.  $0  

b  $55,000

c  $30,000

d $85,000