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Cash.............................................................................. 81,000
Part b.
ESTATE OF LENNIE POPE
Charge and Discharge Statement
As to principal and income
I charge myself with:
Assets per original inventory .................................... $1,201,000
Assets subsequently discovered:
Land......................................................................... 15,000
Gain on sale of Ford Motor Co. stock ...................... 9,000
Dividend income ......................................................... 1,000
Total charges ......................................................... $1,226,000
I credit myself with:
Debts of decedent ...................................................... $108,000
As:
Estate principal:
Cash ............................................................................. $207,000
Certificates of deposit ............................................... 90,000
41. (30 Minutes) (Prepare journal entries for a trust)
a. Cash—Principal ............................................................... 300,000
Investments in Stocks ..................................................... 200,000
Rental Property ................................................................ 150,000
c. Repair Expense—Principal ............................................. 7,000
Cash—Principal .......................................................... 7,000
d. Cash—Principal ............................................................... 1,000
Cash—Income ................................................................. 3,000
Trust Principal ............................................................ 1,000
Trust Income—Dividends .......................................... 3,000
Cash—Principal .......................................................... 3,000
Cash—Income ............................................................. 1,000
h. Equity in Income: Beneficiary ........................................ 5,000
Cash—Income ............................................................. 5,000
42.(20 Minutes) (Prepare journal entries for a trust)
Land ................................................................................. 320,000
Trust—Principal........................................................... 320,000
Cash—Income ................................................................. 60,000
Trust—Income ............................................................. 60,000
(This payment for paving is made from cash income because no principal
cash is held. The trust agreement should indicate how such payments are to
be made and recorded. The following adjustment is also likely necessary to
indicate that this payment has been made from income rather than principal.)
Due from Trust—Principal .............................................. 4,000
Due to Trust—Income ................................................ 4,000
Develop Your Skills (60 Minutes)
Research Case 1
This case is designed to help the student experience how the Internet can be
used to research practical accounting issues in a quick way. Here, a client wants
to know about a Minor's Section 2503(c) Trust. Perhaps no one currently with this
This page provides the following information about this specific type of trust.
Obviously, more information may be needed to enable the CPA to work at an
appropriate level with the client but this coverage provides a basic
understanding. Some of the information that can be obtained from this site
includes:
Gifts can be held in this type of trust until the child reaches the age of 21.
In 2008, up to $12,000 that was given by each person to the trust could be
excluded from any gift tax consideration. In 2009, this amount was
$13,000. In 2013 this amount was $14,000.
After the recipient's 21st birthday, gifts can still be made to the trust fund
but no exclusion is allowed. However, this problem can be avoided by
setting up the Minor's Section 2503(c) Trust in conjunction with another
type of trust known as a Crummey Trust.
Income earned by the trust is taxed at trust income rates unless distributed
directly to the recipient so that it is then taxed at the recipient's tax rates.
The website suggests considering the Uniform Gift/Transfer to Minor's Act
as a good alternative to the Minor's Section 2503(c) Trust.
As can be seen, this website does not make the reader an expert in this type of
trust but it certainly does provide a wealth of information so that initial
discussions can be held in a knowledgeable way with the client.
Research Case 2 (60 Minutes)
Students often believe that all answers can be found in textbooks or the needed
information is simply a part of every CPA's basic knowledge. However, in real life,
most issues are resolved by research. Here, the CPA firm is faced with a tax
"The income distribution deduction allowable to estates and trusts for amounts
paid, credited, or required to be distributed to beneficiaries is limited to
distributable net income (DNI). This amount, which is figured on Schedule B, line
on how Schedule B is completed, including line-by-line instructions. This
schedule provides the student (and the CPA) with the necessary information to
determine DNI. Note, though, that some parts of this process are relatively easy
while other steps are more complex. However, through a careful reading, the
method by which this figure is determined can be ascertained.
Research Case 3 (45 Minutes)
This research case requires the student to use a legal or commercial search
engine to locate a specific state’s probate code. Every state has a probate
statutory scheme. Approximately twenty (20) states have adopted a version of
the uniform probate code, in an attempt to utilize a consistent asset distribution
This statue, which is similar to the statutes of the other states which have
adopted the uniform probate code, provides the following:
72-2-113. Share of heirs other than surviving spouse. (1) Any part of the intestate
estate not passing to the decedent's surviving spouse under 72-2-112,
(http://data.opi.mt.gov/bills/mca/72/2/72-2-112.htm) or the entire intestate estate if
there is no surviving spouse, passes in the following order to the individuals
designated below who survive the decedent:
(a) to the decedent's descendants by representation;
(b) if there is no surviving descendant, to the decedent's parents equally if
both survive or to the surviving parent;
or
(ii) not survived by a grandparent or descendant of a grandparent on either the
paternal or the maternal side, the entire estate to the decedent's relatives on the
other side in the same manner as the half;
Section 72-2-113-1(c) will provide that Ms. Voga’s cousins could inherit from her
grandmother through Ms. Voga’s great grandparents, if in fact Ms. Voga’s
Analysis Case 1 (45 Minutes)
Many resources exist on the Internet to explain different legal and tax benefits of
various estate planning techniques. One link that provides a good overview is
located at: www.estate-plan.com/pdf/Art_Grat.pdf . It is one of dozens of links
that are located by searching for “Grantor Retained Annuity Trust”. The student
should have little difficulty in locating relevant resources.
Included in the information about GRATs at this suggested link and at many other
links is the following:
It can be used to transfer profitable and quickly appreciating property to a
donee, such as the donor’s child(ren), in such a way as to minimize gift and
estate taxes.
For gift tax purposes, the conveyed value is the value when the trust was
created less the value of the annuity interest that the original owner
retains.
This trust is, thus, advantageous when an individual wishes to transfer wealth to
subsequent generations while also minimizing the transfer taxes. It is
particularly useful if the transferor can identify and transfer rapidly appreciating
assets.
Analysis Case 2 (45 Minutes)
In setting the value of an estate, the executor has the option to choose an
alternate date for valuation purposes if that decision will reduce the taxes to be
paid. This case was created to help the student obtain additional information
about this decision if ever encountered in the real world.
The information provided in the instructions discusses the basic issues
concerning valuation at death versus the option of either six-months after death
or the date of transfer whichever comes first. Within that coverage, special issues
