"지갑은 손가방에 있습니까?"
Translation:Is the wallet in the handbag?
"Is the wallet inside the handbag?" should also be accepted. It means exactly the same thing....
I would probably use "안에" or "속에" to convey the part about really being inside, but I get where you're coming from. It might very well end up being accepted if you suggest it as an alternative translation using the report button next you encounter it.