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Chapter 23 PDF
Chapter 23 PDF
Answers to Questions
1 No, trust accounting is essentially cash basis accounting. Field Code Changed
9 Income for estates and trusts and applicable tax rates are defined in
essentially the same manner as for individuals. Income includes interest
and dividends, rent, etc. Deductions and/or exemptions for estate
administration fees, charitable donations and distributions to
beneficiaries reduce taxable income. The fiduciary of the estate must
provide applicable information to the beneficiary on Schedule K-1.
SOLUTIONS TO EXERCISES
Solution E23-1
a Cash (+A) 9,000
Interest receivable - bonds (-A) 4,400
Estate income (R,+SE) 4,600
b Devise - Atlanta Animal Shelter (E,-SE) 100,000
Cash (-A) 100,000
c Funeral expenses (E,-SE) 16,400
Cash (-A) 16,400
d Cash (+A) 50,000
Interest receivable (+A) 1,200
Assets subsequently discovered (-A) 51,200
Cash (+A) 3,000
Interest receivable (-A) 1,200
Estate income (R,+SE) 1,800
Solution E23-3
a Dividend receivable (+A) 300,000
Estate income (R,+SE) 300,000
b No entry on this date, since no distribution has yet been made.
c Probate court expenses (E,-SE) 3,800
Cash (-A) 3,800
d Funeral expenses (E,-SE) 11,600
Cash (-A) 11,600
e Hospital fees and expenses (E,-SE) 37,000
Cash (-A) 37,000
f Cash (+A) 300,000
Dividends receivable (-A) 300,000
Solution E 23-4
Solution E23-5
1. Estate Inventory
Jeff Carpenter, Testator
Inventory of Estate Assets
As of the date of death on August 25, 2011
Description of Property Fair Value
Cash in Oxford National Bank $15,000
Certificates of deposit, includes $7,000 accrued 807,000
interest
Personal effects* -
$822,000
*The probate court permitted exclusion of Jeff’s
personal effects from the estate inventory. Prepared by
Ms. Colleen Ryan, Executrix, Oxford National Bank
3. Closing Entries
Estate principal (-SE) 822,000
Estate income (-R,-SE) 4,500
Funeral expenses (-E,+SE) 7,200
Executrix expenses (-E,+SE) 2,500
Devise - Sooner XXV trust (-E,+SE) 100,000
Devise - J.J. Kara (-E,+SE) 716,800
4. Charge-Discharge Statement
Estate of Jeff Carpenter
Charge-Discharge Statement
For the period of estate administration,
August 25 to September 28, 2011
Estate principal
I charge myself for:
Assets included in estate inventory - total estate $822,000
principal charge
I credit myself for:
Funeral expenses paid $ 7,200
Executrix expenses paid 2,500
Devise paid in cash to Sooner XXV trust account 100,000
Devise paid in cash to J.J. Kara 712,300
Total estate principal discharge $822,000
Estate income
I charge myself for:
Estate income received during estate administration $4,500
I credit myself for:
Payment of estate income to J.J. Kara $4,500
Respectfully submitted, Colleen Ryan, Estate Executrix, September
28, 2011.
Solution E23-7
Trust income
I charge myself for:
Trust income received during trust administration $1,459
I credit myself for:
Funeral expenses paid $ 700
Trust administration fee paid 100
Payments to Puppy Paradise 622
Total trust income discharge $1,422
Payment of remaining trust income to J.J. Kara $ 37
Respectfully submitted, Colleen Ryan, Trust Officer, December 31,
2011.
Solution E23-8
6/1 Cash (+A) 1,000,000
Trust fund principal (+SE) 1,000,000
6/2 Investment in certificate of deposit (+A) 500,000
Cash (-A) 500,000
6/2 Investment in stock mutual fund (+A) 500,000
500,000
Cash (-A)
7/2 Cash (+A) 2,500
Trust fund income (R,+SE) 2,500
($500,000 x 6% x 1/12 year)
7/3 Trust fund expenses (E,-SE) 41
Cash (-A) 41
Solution E 23-10
a.
Fair value of gross estate $5,300,000
2009 Tax Exempt Estate (3,500,000)
Taxable estate $1,800,000
45% Estate Tax Due $810,000
Balance inherited by Emily $4,490,000
b. There were many estate planning options for Mr. Dogbert. For example, he
could have given assets to Emily during his lifetime or bequeathed funds
to his church or some favorite charities, excluding those amounts from
his estate. If the reduced estate value would fall below the federal tax
threshold, it would have left a zero inheritance tax. However, all of
these options expired with Dogbert’s demise.
Solution E 23-11
Fair value of gross estate $3,600,000
2009 Tax Exempt Estate (3,500,000)
Taxable estate $100,000
45% Estate Tax Due $45,000
$3,555,000
Balance inherited by Emily, Laura and Tom
Solution E 23-12
Fair value of gross estate $23,400,000
2009 Tax Exempt Estate (3,500,000)
Taxable estate $19,900,000
45% Estate Tax Due $8,955,000
Balance inherited by Maggie $14,445,000
Estate Principal
I charge myself for:
Assets included in estate inventory $1,802,000
I credit myself for:
Devises paid in cash to:
Clark Olson $ 5,000
Lana Lang 200,000
Jimmy’s church 50,000
Metropolis Symphony Orchestra 50,000 305,000
Devises distributed in kind to:
Clark Olson 265,000
Kent Olson 270,000 535,000
Transferred to Trust account for Lois
Olson:
Cash 962,000
Total estate principal discharge $1,802,000
Estate Income
I charge myself for:
Estate income received during estate $11,300
administration
I credit myself for:
Funeral expenses paid $4,900
Cottage repairs paid 250 $ 5,150
Payment of estate net income to Lois 6,150
Olson
Total estate income discharge $11,300
Respectfully submitted: Clark Olson, Estate Executor, July 22, 2011
Solution P 23-2
Date Accounts Debit Credit
July 22 Cash (+A) 962,000
Trust fund principal (+SE) 962,000
July 23 Certificate of deposit (+A) 300,000
Cash (-A) 300,000
July 25 Super Stock Mutual Fund (+A) 500,000
Cash (-A) 500,000
July 31 Smallville Municipal Bonds (+A) 100,000
Cash (-A) 100,000
August 22 Cash (+A) 1,500
Trust income (R,+SE) 1,500
August 23 Cash (+A) 305
Trust income (R,+SE) 405
Trust fund expenses (E,-SE) 100
August 31 Trust fund expenses (E,-SE) 3,700
Cash (-A) 3,700
Estate income
I charge myself for:
Estate income received during estate administration $700
I credit myself for:
Payment of estate income to Denise Wilson $700
Respectfully submitted, Estate Executrix, April 30, 2011.
Solution P 23-5
Date Accounts Debit Credit
April 30 Cash (+A) 486,750
Land (+A) 28,000
Investment in Bonds (+A) 200,000
Trust fund principal (+SE) 714,750
May 3 Certificate of deposit (+A) 450,000
Cash (-A) 450,000
May 25 Cash (+A) 31,300
Land (-A) 28,000
Trust income (R,+SE) 3,300
May 31 Trust fund expenses(E,-SE) 165
Cash (-A) 165
June 3 Cash (+A) 2,250
Trust income (R,+SE) 2,250
June 15 Trust fund expenses (E,-SE) 8,700
Cash (-A) 8,700
June 30 Trust fund expenses (E,-SE) 165
Cash (-A) 165
Estate income
I charge myself for:
Estate income received during estate administration $1,650
I credit myself for:
Payment of estate income to Humane Society $1,650
Respectfully submitted, Estate Executrix, June 30, 2011.
Solution P 23-8
Date Accounts Debit Credit
June 30 Cash (+A) 997,900
Investment in Bonds (+A) 400,000
Trust fund principal (+SE) 1,397,900
July 5 Certificate of deposit (+A) 750,000
Cash (-A) 750,000
July 31 Trust fund expenses (E,-SE) 275
Cash (-A) 275
August 5 Cash (+A) 3,750
Trust income (R,+SE) 3,750
August 19 Trust fund expenses (E,-SE) 15,000
Cash (-A) 15,000