Chapter 20—Estates and Trusts: Their Nature and the Accountant’s
Role Key
1. In an intestate distribution, personal property is distributed
2. An administrator of an estate differs from an executor of a will in that an administrator
3. Which of the following would not be included in the corpus or principal of an estate?
4. Which of the following items is not included in the estate principal subsequent to the date of death?
5. In the initial journal entry recording the inventory of the estate, liabilities incurred by the decedent are
6. Property that is titled as “joint tenants” allows for:
7. When assets are discovered after the initial accounting for estate principal, the fiduciary will credit:
8. The party ultimately receiving the principal of an estate may be referred to as the
9. The primary purpose of accounting for estates is to facilitate reporting to the court during the fiduciary’s term.
Therefore, which of the following concepts is least important?
10. Which of the following is not an example of income in an estate?
11. Which of the following items is not charged against the income of an estate?
12. Which of the following items are chargeable against the income of an estate?
13. Which of the following statements is true concerning the handling of discounts and premiums for bonds that
are part of an estate at the time of death?
14. Which of the following best describes the accounting for discounts and premiums for bonds purchased by a
fiduciary for an estate?
15. Which of the following statements concerning accounting for depreciation and depletion in an estate is not
true?
16. All of the following would be charged to principal in an estate except:
17. Which of the following is not a legacy?
18. A gift from a specific source, with the will stipulating that if the amount cannot be satisfied from that
source, it should be satisfied from the general estate is a __________ legacy.
19. In a testate distribution, a gift of property left after all other legacies have been assigned is referred to as a
20. If after paying debts and expenses, the estate principal is not adequate to satisfy the various legacies, the
legacies are satisfied to whatever extent possible through the:
21. The primary purpose of an estate’s charge and discharge statement is to detail
22. The Charge and Discharge Statement accounting indicates the need to segregate
23. Planning for estate taxes should address:
24. Which of the following statements is true concerning the maximum gift that can be given within a year
without incurring any gift tax or using any of the unified credit?
25. Which of the following statements is not true?
26. Which of the following is not true about the unified credit that accompanies the unified transfer tax?
27. The unified tax base used to compute federal estate tax is calculated as follows:
28. When determining a decedent’s gross estate for federal tax purposes, which of the following items would not
be included?
29. The gross estate of a decedent:
30. The starting point for the computation of federal estate tax is the gross estate. Which of the following
statements is not true regarding the computation of the gross estate?
31. The effect of the marital deduction is:
32. The alternate valuation date is how many months after the decedent’s death?
33. Which of the following statements is true concerning the election of the alternate valuation date?
34. Jane Ramos owned stock with a cost of $200,000. The stock has a market value on Jane’s date of death of
$375,000. The stock was willed to Jane’s niece Jenny. Which of the following is true?
35. Which of the following statements is true concerning federal income tax laws and estates?
36. A charitable remainder trust
37. A trust created through a will is called a(n)
38. The party to which legal title and management responsibilities are initially given in a trust agreement is
referred to as the
39. Complete the following statements by filling in the blanks:
a.
Real property disposed of under a valid will is called a(n) __________.
b.
A person who dies without a valid will is said to die __________.
c.
The personal representative of the decedent under a valid will is called the __________.
d.
For an unmarried person, the amount of property exempted from the federal estate tax is referred to as the __________.
e.
Since estate rates increase as the tax base increases, the rates are said to be __________.
f.
With spousal consent, nontaxable gifts per individual per year amount to __________.
g.
Under appropriate conditions, the fiduciary of an estate may value assets at a date six months after death. The date is called the
__________.
h.
A valid will says, “My nephew shall receive the gold Canadian maple leaf coins in my Greenwood Trust safety deposit box.” This is an
example of a(n) __________ legacy.
i.
Income from an asset may be assigned to one party called the __________. After a stipulated period of time, the asset itself may be
distributed to another party called the __________.
devise
b.
intestate
executor or executrix
d.
unified credit
progressive
f.
$26,000
g.
alternate valuation date
h.
specific
income beneficiary; remainderman
40. Assuming that no stipulation is made in the will, indicate by placing a check mark in the appropriate column
whether the typical accounting treatment of each of the following items would affect principal only, income
only, or both principal and income accounts of an estate.
Would Affect Only
Would
Item
Principal
Income
Affect Both
(1)
Gain on sale of an estate asset
________
________
________
(2)
Loss on sale of an estate asset
________
________
________
(3)
Redemption of a bond four months after death on which there
was accrued interest on date of death
________
________
________
(4)
Distribution to an income beneficiary
________
________
________
(5)
Income taxes due on decedent’s taxable income to date of
death
________
________
________
(6)
Location of an asset after filing the inventory of estate assets
________
________
________
(7)
Fee paid for professional management of both principal and
income property
_________
________
________
(8)
Costs incurred in probating the will
_________
________
________
(9)
Rental income earned after date of death
________
________
________
(10)
Dividends declared after date of death
________
________
________
Would Affect Only
Would
Item
Principal
Income
Affect Both
(1)
Gain on sale of an estate asset
X
________
________
(2)
Loss on sale of an estate asset
X
________
________
________
________
X
(4)
Distribution to an income beneficiary
________
X
________
(5)
Income taxes due on decedent’s taxable income to date of
death
X
________
________
(6)
Location of an asset after filing the inventory of estate assets
X
________
________
(7)
Fee paid for professional management of both principal and
income property
________
________
X
(8)
Costs incurred in probating the will
X
________
________
Dividends declared after date of death
________
X
________
41. Betty Bloome died on February 28, 20X5. The following trial balance was prepared by the executor of
Betty’s estate as of October 31, 20X5:
As to Principal
As to Income
Cash—Principal
$ 75,000
Cash—Income
$21,000
Corporation Stock
150,000
Assets Subsequently
Discovered.
$ 17,000
Loss on Realization of
Principal Assets
3,000
Funeral and Administrative
Expense
9,000
Debts of Decedent Paid
14,000
Legacies Distributed
20,000
Devises Distributed
10,000
Estate Principal
264,000
Expenses Chargeable
Against Income
$ 2,000
Distributions to Income
Beneficiaries
7,000
Estate Income
30,000
$281,000
$281,000
$30,000
$30,000
Required:
Prepare a charge and discharge statement as of December 31, 20X5.
Estate of Betty Bloome
Charge and Discharge Statement
For the Period October 31, 20X5 through December 31, 20X5
As to Principal
I charge myself with:
Assets per original inventory
$264,000
Assets subsequently discovered
17,000
Total charges
$281,000
I credit myself with:
Loss on realization of principal assets
$ 3,000
Funeral and administrative expenses
9,000
Debts of decedent paid
14,000
Legacies distributed
20,000
Devises distributed
10,000
Total credits
56,000
Balance as to estate principal, consisting of:
Cash—principal
$ 75,000
Corporation Stock
150,000
$225,000
I charge myself with:
Estate income
$30,000
I credit myself with:
Expenses chargeable against income
$2,000
Distributions to income beneficiaries
7,000
Total credits
9,000
42. Al Sooner died on January 15, 20X5. Records disclose the following estate:
Cash in the bank
$ 7,500
5% note receivable, including $50 accrued
interest
3,050
Stocks
70,000
Dividends declared on stocks
250
8% mortgage receivable, including $150
accrued interest
30,150
Real estate – apartment house
400,000
Household effects
27,250
Dividends receivable from the Peg Sooner
Trust Fund
250,000
Total inventory of assets
$788,200
Cash receipts:
Jan.
20
Dividends
$ 1,500
25
5% note receivable
3,000
Interest on 5% note receivable
53
Stocks sold, inventoried at $22,500
20,000
8% mortgage sold
33,000
Interest accrued on mortgage
207
28
Sale of assets not inventoried
250
29
Sale of apartment house
395,000
Total cash receipts
$453,010
Cash Disbursements:
Jan.
20
Funeral expenses
$ 2,750
23
Decedent’s debts
8,000
25
Decedent’s bequests
10,000
31
Payment to son, including all estate income
20,000
Total cash disbursements
$40,750
Required:
Prepare journal entries to record the events in his estate for the period January 15 through January 31, 20X5.
To record sale of apartment
43. Trent Tyler died on January 15, 20X9. Records disclose the following estate:
Cash in the bank
$ 15,000
8% note receivable, including $100 accrued interest
8,100
Stocks
80,000
Dividends declared on stocks
600
10% mortgage receivable, including $200 accrued interest
40,200
Real estate – apartment house
220,000
Household effects
21,500
Dividends receivable from Terry Tyler Trust Fund
100,000
Total inventory of assets
$485,400
Cash receipts:
Jan.
20
Dividends
$ 4,500
25
8% note receivable
8,000
Interest on 8% note receivable
120
Stocks sold, inventoried at $62,000
55,000
10% mortgage sold
46,000
Interest accrued on mortgage
300
28
Sale of assets not inventoried
450
29
Sale of apartment house
210,000
Total cash receipts
$324,370
Cash Disbursements:
Jan.
20
Funeral Expenses
$ 6,500
23
Decedent’s debts
5,000
Decedent’s bequests distributed to widow
18,000
31
Payment to son, including all estate income
35,000
Total cash disbursements
$64,500
Required:
Prepare a charge and discharge statement for the period January 15 through January 31, 20X9.