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1、 2009 Pearson Education,Inc.publishing as Prentice Hall 22-1 Chapter 22 ESTATES AND TRUSTS Answers to Questions 1 No,trust accounting is essentially cash basis accounting.2 Income is earned on the principal amounts of estate and trust assets.Estates frequently realize income from various investments
2、 between the time that the property inventory is filed by the executor and the time the estate is fully administered.A primary reason for dividing estate principal and income is that the beneficiaries are likely to be different.Separation of principal and income is also important for trusts,because
3、often a trusts principal is to be maintained intact until the death of the beneficiary.3 A devise is a testamentary disposition of real or personal property.4 If a decedent had a valid will in force at the time of death,he or she is said to have died testate.In the absence of a valid will,the decede
4、nt is said to have died intestate.5 The Uniform Probate Code entitles the surviving spouse to a homestead allowance that is exempt from and has priority over all claims against the estate.The surviving spouse and minor children who were dependent on the deceased are also entitled to a reasonable fam
5、ily allowance to be paid out of estate property during the period in which the estate is being administered.The family allowance is exempt from and has priority over all claims except the homestead allowance.Allowance amounts vary across the states.6 Yes,the value of the estate is reduced by funeral
6、 expenses,settlements of estate liabilities,bequests to qualified charities,a marital deduction,state-level taxes,expenses of estate administration,and a tax exempt amount.7 The taxable amount of an estate is based on fair values of all estate assets at the date of death.8 Yes,within certain limitat
7、ions.Currently any number of annual gifts of$12,000 each can be made,with a lifetime limit of$1,000,000.9 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
8、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-1.10 An estate may be subject to taxation(referred to as estate or inheritance taxes)at both t
9、he state and federal levels.Accountants and attorneys play a vital role in estate planning to minimize these tax burdens for their clients and heirs.Even if the federal tax is permanently repealed,estate planning services will remain critical for larger estates subject to state level taxation.Federa
10、l taxation of estates is currently in a period of flux.The Economic Growth and Tax Relief Reconciliation Act of 2001 proposed 22-2 Estates and Trusts 2009 Pearson Education,Inc.publishing as Prentice Hall reduction of the tax,and a total repeal in 2010.However,unless Congress acts to make the repeal
11、 permanent,the tax will return in 2011.11 A valid will ensures the disposition of estate assets in accordance with the wishes of the deceased.If a valid will is not in place,assets will be distributed in accordance with state probate laws.Preparation of a will is also an important part of overall es
12、tate planning and can be useful in reducing estate and inheritance taxes.12 In addition to federal and state estate and inheritance taxes,estates are also subject to federal(and possibly state)income taxes.An estate is a taxable entity and is subject to tax on income earned from the date of death un
13、til final settlement of the estate.The tax may be paid by the estate or by the beneficiary if estate property has already been distributed to the beneficiary.SOLUTIONS TO EXERCISES Solution E22-1 a Cash(+A)4,500 Interest receivable-bonds(-A)2,200 Estate income(R,+SE)2,300 b Devise-Atlanta Animal She
14、lter(E,-SE)50,000 Cash(-A)50,000 c Funeral expenses(E,-SE)8,200 Cash(-A)8,200 d Cash(+A)25,000 Interest receivable(+A)600 Assets subsequently discovered(-A)25,600 Cash(+A)1,500 Interest receivable(-A)600 Estate income(R,+SE)900 Chapter 22 22-3 2009 Pearson Education,Inc.publishing as Prentice Hall S
15、olution E22-2 a Cash(+A)7,500 Interest receivable-bonds(-A)5,800 Estate income(R,+SE)1,700 b Devise-symphony orchestra(E,-SE)75,000 Cash(-A)75,000 c Probate expenses(E,-SE)1,400 Cash(-A)1,400 d Funeral expenses(E,-SE)6,400 Cash(-A)6,400 e Estate principal(-SE)22,000 Accounts payable(+L)22,000 Soluti
16、on E22-3 a Dividend receivable(+A)150,000 Estate income(R,+SE)150,000 b No entry on this date,since no distribution has yet been made.c Probate court expenses(E,-SE)1,900 Cash(-A)1,900 d Funeral expenses(E,-SE)5,800 Cash(-A)5,800 e Hospital fees and expenses(E,-SE)18,500 Cash(-A)18,500 f Cash(+A)150
17、,000 Dividends receivable(-A)150,000 22-4 Estates and Trusts 2009 Pearson Education,Inc.publishing as Prentice Hall Solution E 22-4 Melanie Triciao,Testator Inventory of Estate Assets As of the date of Death on August 15,2009 Description of Property Fair Value Cash$118,225 Savings accounts 250,000 V
18、iaReggio common stock 225,000 City of Roma municipal bonds 412,000 Mercedes sports car 41,000 Condominium on Italian Riviera 1,265,500 Atlanta personal residence 430,000 Collection of rare hand puppets 85,000 Fully restored Model T Ford 125,000$2,951,725 Submitted by K.T.Tim,executor Solution E22-5
19、1.Estate Inventory Jeff Carpenter,Testator Inventory of Estate Assets As of the date of death on August 25,2009 Description of Property Fair Value Cash in Oxford National Bank$15,000 Certificates of deposit,includes$7,000 accrued interest 807,000 Personal effects*-$822,000*The probate court permitte
20、d exclusion of Jeffs personal effects from the estate inventory.Prepared by Ms.Colleen Ryan,Executrix,Oxford National Bank Chapter 22 22-5 2009 Pearson Education,Inc.publishing as Prentice Hall Solution E22-5(continued)2.a Cash(+A)11,500 Interest receivable-bonds(-A)7,000 Estate income(R,+SE)4,500 b
21、 Cash(+A)800,000 Certificates of deposit(-A)800,000 c Devise-Sooner XXV trust account(E,-SE)100,000 Cash(-A)100,000 d Funeral expenses(E,-SE)7,200 Cash(-A)7,200 e Executrix expenses(E,-SE)2,500 Cash(-A)2,500 Devise-J.J.Kara(E,-SE)716,800 Cash(-A)716,800 3.Closing Entries Estate principal(-SE)822,000
22、 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 22-6 Estates and Trusts 2009 Pearson Education,Inc.publishing as Prentice Hall Solution E22-5(continued)4.Charge-Discharge Statement Estate
23、 of Jeff Carpenter Charge-Discharge Statement For the period of estate administration,August 25 to September 28,2009 Estate principal I charge myself for:Assets included in estate inventory-total estate principal charge$822,000 I credit myself for:Funeral expenses paid$7,200 Executrix expenses paid
24、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 Re
25、spectfully submitted,Colleen Ryan,Estate Executrix,September 28,2009.Chapter 22 22-7 2009 Pearson Education,Inc.publishing as Prentice Hall Solution E22-6 9/15 Cash(+A)100,000 Trust fund principal(+SE)100,000 9/16 Money market investment(+A)100,000 Cash(-A)100,000 10/16 Cash(+A)417 Trust fund income
26、(R,+SE)417 10/19 Trust fund expenses(E,-SE)300 Cash(-A)300 10/27 Trust fund expenses(E,-SE)22 Cash(-A)22 11/16 Cash(+A)417 Trust fund income(R,+SE)417 11/22 Trust fund expenses(E,-SE)300 Cash(-A)300 12/16 Cash(+A)417 Trust fund income(R,+SE)417 12/28 Trust fund expenses(E,-SE)700 Cash(-A)700 12/31 T
27、rust fund expenses(E,-SE)100 Cash(-A)100 12/31 Interest receivable(+A)208 Trust fund income(R,+SE)-Accrued interest for last month.208 12/31 Trust fund principal(-SE)100,000 Trust fund income(-R,-SE)1,459 Trust fund expenses(-E,+SE)1,422 Interest receivable(-A)208 Money market investment(-A)100,000
28、Cash(-A)37 22-8 Estates and Trusts 2009 Pearson Education,Inc.publishing as Prentice Hall Solution E22-7 Sooner XXV Trust Charge-Discharge Statement For the period of trust administration,September 15 to December 31,2009 Trust principal I charge myself for:Assets included in trust-total estate princ
29、ipal charge$100,000 I credit myself for:Transfer of money market investment to J.J.Kara$100,000 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 Tota
30、l trust income discharge$1,422 Payment of remaining trust income to J.J.Kara$37 Respectfully submitted,Colleen Ryan,Trust Officer,December 31,2009.Solution E22-8 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 Investmen
31、t in stock mutual fund(+A)500,000 Cash(-A)500,000 7/2 Cash(+A)2,500 Trust fund income(R,+SE)($500,000 x 6%x 1/12 year)2,500 7/3 Trust fund expenses(E,-SE)41 Cash(-A)41 Chapter 22 22-9 2009 Pearson Education,Inc.publishing as Prentice Hall Solution E 22-9 Cash(+A)218,220 Savings accounts(+A)300,000 M
32、icrosystems common stock(+A)400,000 Big Casino common stock(+A)120,000 Vintage sports car(+A)31,000 Mountain cottage(+A)114,500 Personal residence(+A)457,500 Trust fund principal(+SE)1,641,220-To record receipt of property transferred from executor.Solution E 22-10 a.Fair value of gross estate$5,300
33、,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 favorit
34、e 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 Dogberts demise.22-10 Estates and Trusts 2009 Pearson Education,Inc.publishing as Prentice Ha
35、ll Solution E 22-11 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 Balance inherited by Emily,Laura and Tom$3,555,000 Solution E 22-12 Fair value of gross estate$23,400,000 2009 Tax Exempt Estate(3,500,000)Taxable estate$19,900,0
36、00 45%Estate Tax Due$8,955,000 Balance inherited by Maggie$14,445,000 Chapter 22 22-11 2009 Pearson Education,Inc.publishing as Prentice Hall Solution P 22-1 Part 1 Cash(+A)15,000 June 22 Interest receivable(-A)5,000 Estate income(R,+SE)10,000 June 24 Cash(+A)12,000 Dividends receivable(-A)12,000 Ju
37、ne 30 Estate expense(E,-SE)250 Cash(-A)250 July 4 Estate expense(E,-SE)4,900 Cash(-A)4,900 July 12 Cash(+A)501,300 Certificate of deposit(-A)500,000 Estate income(R,+SE)1,300 July 15 Cash(+A)750,000 Certificate of deposit(+A)500,000 Interest receivable(+A)5,000 Common stocks(+A)460,000 Dividend rece
38、ivable(+A)12,000 Lake Michigan cottage(+A)40,000 2005 Corvette(+A)35,000 Estate principal(+SE)1,802,000 July 20 Devise-2005 Corvette-Clark Olson(E,-SE)35,000 Devise-Lake cottage-Kent Olson(E,-SE)40,000 Devise-stocks-Clark Olson(E,-SE)230,000 Devise-stocks-Kent Olson(E,-SE)230,000 Lake Michigan cotta
39、ge(-A)40,000 2005 Corvette(-A)35,000 Common stocks(-A)460,000 22-12 Estates and Trusts 2009 Pearson Education,Inc.publishing as Prentice Hall Solution P 22-1(continued)July 21 Devise-cash fees-Clark Olson(E,-SE)5,000 Devise-Lana Lang(E,-SE)200,000 Devise-Jimmys church(E,-SE)50,000 Devise-Metropolis
40、Symphony(E,-SE)50,000 Cash(-A)305,000 Part 2 Closing Entries July 22 Estate income(-R,-SE)11,300 Estate expenses(-E,+SE)5,150 Cash(-A)6,150 -Close estate income and expenses and distribute estate net income to Lois Estate principal(-SE)840,000 Devise-2005 Corvette-Clark Olson(-E,+SE)35,000 Devise-La
41、ke cottage-Kent Olson(-E,+SE)40,000 Devise-stocks-Clark Olson(-E,+SE)230,000 Devise-stocks-Kent Olson(-E,+SE)230,000 Devise-cash fees-Clark Olson(-E,+SE)5,000 Devise-Lana Lang(-E,+SE)200,000 Devise-Jimmys church(-E,+SE)50,000 Devise-Metropolis Symphony(E,-SE)50,000 -Close devise distributions Estate
42、 principal(-SE)962,000 Cash(-A)962,000 -Close estate and transfer remaining cash balance to Trust Chapter 22 22-13 2009 Pearson Education,Inc.publishing as Prentice Hall Solution P 22-1(continued)Part 3 Estate of Jimmy Olson Charge-Discharge Statement For the Period of Estate Administration June 15
43、to July 22,2009 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 Jimmys church 50,000 Metropolis Symphony Orchestra 50,000 305,000 Devises distributed in kind to:Clark Olson 265,000 Kent
44、 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 administration$11,300 I credit myself for:Funeral expenses paid$4,900 Cottage repairs paid 250$5,150 Payme
45、nt of estate net income to Lois Olson 6,150 Total estate income discharge$11,300 Respectfully submitted:Clark Olson,Estate Executor,July 22,2009 22-14 Estates and Trusts 2009 Pearson Education,Inc.publishing as Prentice Hall Solution P 22-2 Date Accounts Debit Credit July 22 Cash(+A)962,000 Trust fu
46、nd 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 Tr
47、ust fund expenses(E,-SE)100 August 31 Trust fund expenses(E,-SE)3,700 Cash(-A)3,700 Chapter 22 22-15 2009 Pearson Education,Inc.publishing as Prentice Hall Solution P 22-3 Date Accounts Debit Credit March 15 Cash(+A)66,500 Dividends receivable(+A)400 Interest receivable(+A)2,400 Life insurance recei
48、vable(+A)500,000 Personal residence(+A)325,000 Household furnishings and personal effects(+A)76,000 Automobile(+A)21,000 Investments in stocks(+A)25,000 Investments in bonds(+A)200,000 Estate principal(+SE)1,216,300 -Record estate inventory at fair values.March 25 Funeral expenses(E,-SE)2,800 Cash(-
49、A)2,800 March 30 Cash(+A)500,000 Life insurance receivable(-A)500,000 April 9 Land(+A)10,000 Assets subsequently discovered(-A)10,000 -Record lakefront property at cost,awaiting an appraisal.April 15 Cash(+A)3,000 Interest receivable(-A)2,400 Estate income(R,+SE)600 April 19 Land(+A)18,000 Assets su
50、bsequently discovered(-A)18,000 -Adjust lakefront property to appraisal.April 28 Debts of decedent paid(E,-SE)13,250 Cash(-A)13,250 22-16 Estates and Trusts 2009 Pearson Education,Inc.publishing as Prentice Hall Solution P 22-3(continued)April 29 Cash(+A)500 Dividends receivable(-A)400 Estate income