Chapter 19 – Accounting for Estates and Trusts
1. When a person dies without leaving a valid will, how is the distribution of his or her property
determined?
A) In accordance with federal inheritance laws.
B) In accordance with generally accepted accounting principles.
C) In accordance with a plan developed by the executor of the estate.
D) In accordance with state inheritance laws.
E) In accordance with common law.
2. Under what circumstance does an estate have an executor?
A) When there is no valid will.
B) When the estate exceeds the dollar amount of the estate tax exemption.
C) When the will establishes a trust fund.
D) When the will is contested.
E) When the will names a specific person to administer the estate.
3. When an estate does not have sufficient assets to satisfy all claims against it, what claim has
the highest priority?
A) Expenses of administering the estate.
B) Federal income taxes.
C) State income taxes.
D) Medical expenses of the final illness.
E) Back wages owed to any employees.
4. What is the process of abatement?
A) An attempt to determine the deceased’s intentions when the terms of the will are unclear.
B) A reduction of various bequests when the estate is not adequate to satisfy them completely.
C) Selling of assets included in an estate to be able to pay creditors.
D) Payment of the claims of creditors.
E) The establishment of how the creditors will be paid.
5. A demonstrative legacy is a
A) Gift of personal property that is directly identified.
B) Cash gift from a particular source.
C) Gift of estate property that remains after carrying out the other provisions of the will.
D) Gift of real property.
E) Gift of intangible property.
6. In a will, a devise is a
A) Gift of personal property that is directly identified.
B) Cash gift from a particular source.
C) Gift of estate property that remains after carrying out the other provisions of the will.
D) Gift of real property.
E) Gift of intangible property.
7. What guidelines must be followed to classify a transaction as associated with the principal of
an estate or as an income transaction?
A) Generally accepted accounting principles.
B) Federal estate laws.
C) State estate laws.
D) The Internal Revenue Code.
E) The decedent’s intentions or state laws.
8. Executor’s fees and court costs for settling an estate usually
A) Must be apportioned between the principal and the income of the estate.
B) Are adjustments to the principal of the estate.
C) Are adjustments to the income of the estate.
D) Are subtracted from life insurance proceeds.
E) Are ignored.
9. In an executor’s accounting for an estate, debts and other obligations are recorded
A) At book value.
B) As a reduction of income.
C) On the date of payment.
D) As soon as discovered.
E) Only if they are past due.
10. A testamentary trust is a trust
A) Intended to protect the assets of a minor.
B) That is managed by the trustor.
C) That is managed by an estate.
D) Established by a living person.
E) Established by a will.
11. Which of the following is usually accounted for as an adjustment to a trust’s principal?
A) Repairs expense.
B) Rent expense.
C) Investment costs and commissions.
D) Insurance expense.
E) Property taxes.
12. Which of the following is usually not accounted for as an adjustment to a trust’s income?
A) Ordinary repairs expense.
B) Rent expense.
C) Investment costs and commissions.
D) Insurance expense.
E) Property taxes.
13. The trustor is the
A) Income beneficiary of the trust.
B) Ultimate recipient of the principal from the trust.
C) Fiduciary who manages the assets in the trust.
D) Person who funds the trust.
E) Person who disposes of the assets in the trust.
14. The gift to David is a
A) General legacy.
B) Specific legacy.
C) Demonstrative legacy.
D) Residual legacy.
E) Devise.
15. The gift to James is a
A) General legacy.
B) Specific legacy.
C) Demonstrative legacy.
D) Residual legacy.
E) Devise.
16. The decedent resided in a state that does not treat a demonstrative legacy shortfall as a
general legacy. How much would James have received from the estate?
A) $50,000.
B) $40,000.
C) $25,000.
D) $45,000.
E) $30,000.
17. The decedent resided in a state that does not treat a demonstrative legacy shortfall as a
general legacy. How much would Lila have received from the estate?
A) $ 0.
B) $40,000.
C) $35,000.
D) $45,000.
E) $30,000.
18. The decedent resided in a state that treats a demonstrative legacy shortfall as a general
legacy. How much would James have received from the estate?
A) $50,000.
B) $40,000.
C) $25,000.
D) $45,000.
E) $30,000.
19. The decedent resided in a state that treats a demonstrative legacy shortfall as a general
legacy. How much would Lila have received from the estate?
A) $ 0.
B) $40,000.
C) $35,000.
D) $45,000.
E) $30,000.
20. Assume that, at the time of death, the estate included 1,200 shares of Dorn stock, $60,000
cash in the savings account, and $70,000 in cash from other sources. What would the son have
received from the settlement of the estate?
A) 1,200 shares of Dorn stock and $35,000 cash.
B) 2,000 shares of Dorn stock and $10,000 cash.
C) 2,000 shares of Dorn stock and $25,000 cash.
D) 1,200 shares of Dorn stock and $10,000 cash.
E) 1,200 shares of Dorn stock and $25,000 cash.
21. Assume that the estate included 1,200 shares of Dorn stock, $22,000 cash in the savings
account, and $70,000 in cash from other sources. The decedent resided in a state that treats a
demonstrative legacy shortfall as a general legacy. .What would the daughter have received from
the settlement of the estate?
A) $60,000 cash.
B) $50,000 cash.
C) $55,000 cash.
D) $62,000 cash.
E) $56,000 cash.
22. Which of the following is not subtracted to arrive at the taxable value of an estate?
A) Liabilities.
B) Charitable bequests.
C) Funeral expenses.
D) Estate administration expenses.
E) Deduction for property conveyed to children of decedent.
23. Assume that Bob Smith dies on May 25, 2018. Mr. Smith’s assets include the following:
ABC Stock costing $30,000 but valued at $40,000; a house costing $280,000 but valued at
$620,000; life insurance in the amount of $600,000; and cash from various sources totaling
$50,700. Three credit cards in Mr. Smith’s name had balances totaling $8,530 on the date of
death. The estate paid funeral and final medical expenses in the amount of $50,492. There were
no charitable gifts designated by the will, and Mr. Smith was single at the time of his death.
What is the amount of the taxable estate?
A) $ 901,678.
B) $1,251,678.
C) $1,268,738.
D) $1,310,700.
E) $ 651,678.
24. What is the amount of the personal exemption on an estate income tax return?
A) $ 0.
B) $100.
C) $300.
D) $500.
E) $600.
25. Which of the following is normally viewed as an adjustment to the principal of an estate?
A) Ordinary repair expenses.
B) Insurance expenses.
C) Utility expenses.
D) Major repairs to rental property.
E) Property taxes.
26. Which of the following is not normally viewed as an adjustment to the principal of an estate?
A) Dividends declared prior to death.
B) Investment commissions and other costs.
C) Funeral expenses.
D) Insurance expenses.
E) Debts incurred prior to death.
27. What are the goals of probate laws?
(1) Gather and preserve all of the decedent’s property
(2) Carry out an orderly and fair settlement of all debts
(3) Discover and follow the decedent’s intent for the remaining property
A) 1 only.
B) 2 only.
C) 3 only.
D) 1 and 2.
E) 1, 2, and 3.
28. 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) Credit card debts.
A) 1 and 2.
B) 2 and 3.
C) 3 and 4.
D) 1 and 4.
E) 2 and 4.
29. A gift that is specified in a will as “I leave my collection of baseball cards to my son” is a
A) General legacy.
B) Specific legacy.
C) Demonstrative legacy.
D) Residual legacy.
E) Devise.
30. A gift that is specified in a will as “I leave $5,000 in cash from my checking account to my
daughter” is a
A) General legacy.
B) Specific legacy.
C) Demonstrative legacy.
D) Residual legacy.
E) Devise.
31. A gift that is specified in a will as “I leave $5,000 in cash to my son” is a
A) General legacy.
B) Specific legacy.
C) Demonstrative legacy.
D) Residual legacy.
E) Devise.
32. A gift of any remaining estate property is a
A) General legacy.
B) Specific legacy.
C) Demonstrative legacy.
D) Residual legacy.
E) Devise.
33. Assuming at the time of death the estate included 1,400 shares of Wal-Mart Stores stock and
$25,000 cash in the savings account, what would the son have received from the settlement of the
estate?
A) 1,000 shares of Wal-Mart stock and $15,000 cash
B) 1,000 shares of Wal-Mart stock and $0 cash
C) 1,000 shares of Wal-Mart stock and $10,000 cash
D) 1,200 shares of Wal-Mart stock and $5,000 cash
E) 1,400 shares of Wal-Mart stock and $5,000 cash
34. What is the remaining principal to be divided equally between the son and the daughter?
A) $10,000 cash
B) $15,000 cash
C) 400 shares of Wal-Mart stock and $10,000 cash
D) 400 shares of Wal-Mart stock and $15,000 cash
E) 1,000 shares of Wal-Mart stock and $5,000 cash
35..Assuming at the time of death the estate included 1,000 shares of Wal-Mart Stores stock and
$6,000 cash in the savings account, what would the brother have received from the settlement of
the estate?
A) $ 0.
B) $ 5,000.
C) $ 6,000.
D) $10,000.
E) $11,000.
36. The estate of Bobbi Jones has the following provisions: total value of estate assets
$2,000,000, amount specified to convey to a spouse $1,000,000, amount specified to convey to
children $200,000, total debts 400,000, administrative expenses $50,000, and funeral expenses of
$30,000. What is the value of the taxable estate?
A) $ 320,000.
B) $ 520,000.
C) $ 550,000.
D) $1,480,000.
E) $1,520,000.
37. The party to receive a distribution of principal from an estate is legally called a(n):
A) Principal grantee.
B) Corpus benefitor.
C) Estate receiver.
D) Remainderman.
E) Estate distributee.
38. Jim Bowie died on April 1, 2018. The estate has the following gross asset valuation
information:
Estate Asset
April 1, 2018
October 1, 2018
Date of Sale
June 1, 2018
Coin collection
$30,000
$28,000
$25,000
Google common stock
$50,000
$48,000
$56,000
The estate tax will be calculated based on:
A) $73,000.
B) $75,000.
C) $76,000.
D) $80,000.
E) $89,000.
39. An executor will normally carry out all the following tasks except:
A) Distribute property to beneficiaries.
B) Settle claims against the decedent.
C) Inventory property existing at the date of death.
D) Prepare estate tax returns.
E) Account to the probate court.
40. When there are not enough assets in the estate to satisfy all legacies in the will, the
distribution schedule goes through a process of:
A) Ademption.
B) Amendment.
C) Abatement.
D) Accretion.
E) Aggregation.
41. Which type of trust requires that income generated from its assets be recognized, for federal
income tax purposes, by the grantor during his or her lifetime, and reported in his or her
individual income tax return?
A) Inter vivos trust.
B) Grantor trust.
C) Revocable living trust.
D) Family trust.
E) Irrevocable life insurance trust.
42. Which of the following is not a type of trust used for estate planning?
A) Minor’s Section 2503(c) trust.
B) Alimony trust.
C) Credit shelter trust.
D) Qualified terminable interest property trust.
E) Grantor retained annuity trust.
43. 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
44. What is meant by estate accounting?
45. What is meant by “an individual dies intestate”?