Exam 19: Accounting for Estates and Trusts

For each of the following situations, select the best answer concerning adjustments to principal and income of an estate. Assume that the will does not specify whether the item is to be classified as principal or income. (A.) Adjustment to the principal of the estate. (B.) Adjustment to the income of the estate. (C.) Allocated between the principal and income of the estate in some fair manner. (D.) Allocated between the principal and income of the estate determined by existence at date of death. ___ 1. Homestead allowance ___ 2. Insurance expenses ___ 3. Executor's fee ___ 4. Life insurance proceeds when estate is beneficiary ___ 5. Investment commissions ___ 6. Debts incurred prior to death ___ 7. Water and other utility expenses ___ 8. Liquidating dividends ___ 9. Dividend income ___ 10. Funeral expenses ___ 11. Extraordinary repairs on income-producing property ___ 12. Attorney fees ___ 13. Property taxes ___ 14. Gains and losses on the sale of securities ___ 15. Interest income ___ 16. Court costs ___ 17. Ordinary repairs on income-producing property ___ 18. Accounting fees

After expenses of administering an estate, which claims would be next in a typical order of priority to establish which creditors will get paid? (1) funeral expenses (2) medical expenses of the last illness (3) debts and taxes given preference under laws (4) all other claims.

The estate of Kent Talbert reported the following information: Required: Prepare a schedule to show the amount of the taxable estate.

Executor's fees and court costs for settling an estate usually

An inter vivos trust was created by Isaac Posney. Isaac owned a large department store in Juggins, Utah. Adjacent to the store, Isaac also owned a tract of land that was used as an extra parking lot when the store was having a sale or during the Christmas season. Isaac expected the land to appreciate in value and eventually be sold for an office complex or additional stores. Isaac placed the land into a charitable lead trust which would hold the land for ten years until Isaac's son would turn 21. At that time, title would be transferred to the son. The store will pay rent to use the land during the interim. The income generated each year from this usage will be given to a local church. The land was currently valued at $416,000. During the first year of this arrangement, the trustee recorded the following cash transactions: Required: Prepare all required journal entries for this trust fund including the entry to create the trust.

Which of the following is not subtracted to arrive at the taxable value of an estate?

What is the amount of the personal exemption on an estate income tax return?

A gift that is specified in a will as "I leave $5,000 in cash from my checking account to my daughter" is a

The executor of the Estate of Kate Tweed discovered the following assets (at fair value): The will of Kate Tweed had the following provisions: • $195,000 in cash went to Victor Vickery. • All shares of PepsiCo went to Duchess Doyle. • The residence went to Louis Tweed. • All other estate assets were to be liquidated with the resulting cash going to the Sacred Church of Liberty, Missouri. Funeral expenses of $26,000 were paid. Prepare the journal entry to record the transaction.

The terms of a will currently undergoing probate are: "A gift to my brother David of $25,000 cash; to my son James, $50,000 from my savings account; and to my Daughter Lila, all of my remaining property." At the time of death, the balance in the savings account was $40,000, and there was additional cash (after payment of funeral expenses and all claims against the estate) of $70,000. How much would James have received from the estate?

What guidelines must be followed to classify a transaction as associated with the principal of an estate or as an income transaction?

When an estate does not have sufficient assets to satisfy all claims against it, what claim has the highest priority?

What choices does an executor of an estate have in determining the values of assets included in the estate for tax purposes?

Which of the following is not normally viewed as an adjustment to the principal of an estate?

What is the difference between an executor and an administrator?

The executor of Danny Mack's estate has listed the following properties at fair value: Cash $200,000, Life Insurance Receivable $500,000, Investment in Stocks and Bonds $50,000, Rental Property $100,000, and Personal Property $80,000. Additionally, the executor found $100,000 of various debts incurred before the decedent's death. The cost of Danny Mack's funeral was $20,000. Prepare the journal entry to record the collection of rental income of $10,000. $1,000 had been earned prior to the decedent's death.

The provisions of a will currently undergoing probate are: "One thousand shares of Wal-Mart stock to my son; $10,000 in cash from my savings account to my brother; $5,000 in cash to my daughter; and any remaining property divided equally between my son and daughter." At the time of death, the estate included 1,400 shares of Wal-Mart stock and $25,000 cash in the savings account. What would the son have received from the settlement of the estate?

For which type of trust is the income taxed in the grantor's individual income tax return?

The executor of the Estate of Kate Tweed discovered the following assets (at fair value): The will of Kate Tweed had the following provisions: • $195,000 in cash went to Victor Vickery. • All shares of PepsiCo went to Duchess Doyle. • The residence went to Louis Tweed. • All other estate assets were to be liquidated with the resulting cash going to the Sacred Church of Liberty, Missouri. Cash of $195,000 was conveyed to the appropriate beneficiary. Prepare the journal entry to record the transaction.

Which of the following is normally viewed as an adjustment to the principal of an estate?