Ch23 Beams12ge SM

Chapter 23
ESTATES AND TRUSTS
Answers to Questions
1 A fiduciary is a person or an entity authorized to take possession and administer property of others. The
fiduciary will take possession of someone else or other entitys properties and manage them in the best
interest of the beneficiaries. Administering the properties includes taking account for any transactions
related to the property for any income, expense, gains or losses, hence the need of estate and trust
accounting. This usually happens if the original owner of the properties died.
2 Income is earned on the principal amounts of estate and trust assets. Estates frequently realize income
from various investments 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 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 The executor would record inventories of all estate assets in a self-balancing set of accounts that shows:
(1) the property for which responsibility has been assumed, and (2) the manner in which the responsibility
is subsequently discharged. The executor do not have the responsibility to record any obligations and any
claims against the estate until paid.
5 A document prepared by the fiduciary to show accountability for estate property received and maintained
or disbursed in accordance to the will. It shows the progress of the estate administration and the
termination of responsibility when the will has been fully administered. It consists of two major elements:
(1) estate principals, and (2) estate income.
6 Yes, the value of the estate is reduced by funeral 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 limitations. Currently any number of annual gifts of $14,000 each can be made, with a
lifetime limit of $5,250,000.
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 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 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 estate planning and can be useful in reducing estate and
inheritance taxes.
11 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 until 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
Copyright 2015 Pearson Education Limited

23-2 Estates and Trusts
Solution E23-1
1 Mortgage claim of Secured Claim other claims

$5,000 on the summer
palace
2 Hospital bills of Secured Claim - reasonable and necessary
$1,000 medical and hospital expenses of the last
illness of the decedent
Hospital expenses $1,000

Mortgage payable 5,000
Cash principal $6,000
To record payment for hospital expenses and mortgage payable.

Chapter 23 23-3
Solution E23-2
a Cash (+A) 15,000
Interest receivable - bonds (-A) 11,600
Estate income (R,+SE) 3,400
b Devise - symphony orchestra (E,-SE) 150,000
Cash (-A) 150,000
c Probate expenses (E,-SE) 2,800
Cash (-A) 2,800
d Funeral expenses (E,-SE) 12,800
Cash (-A) 12,800
e Hospital expense (-SE) 44,000
Debt of decedent (+L) 44,000
Solution E23-3
1 January 2014 Cash $500,000

Trust fund principal $500,000
3 January 2014 Certificate deposit 250,000

Cash 250,000
15 January 2014 Stock mutual fund 50,000

Cash 50,000
25 January 2014 Trust fund expenses 500

Cash 500
1 February 2014 Trust fund expenses 200

Cash 200
2 February 2014 Cash 1,042

Trust fund income 1,042

Cash 500

Cash 600

Cash 250
28 February 2014 Cash 934.2

Trust fund income (26/29 x $1,042) 934.2

28 February 2014 Trust find principal 500,000

Trust fund income 1976.2
Trust fund expenses 2,050
Certificate deposit investment 250,000
Cash 199,926.2
Stock mutual fund 50,000
Solution E 23-4
Melanie Triciao, Testator

Inventory of Estate Assets
As of the date of Death on August 15, 2013
Description of Property Fair Value

Cash $ 118,225
Savings accounts 250,000
ViaReggio 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 E23-5
1. Estate Inventory
Jeff Carpenter, Testator
Inventory of Estate Assets
As of the date of death on August 25, 2013
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

Chapter 23 23-5
*The probate court permitted exclusion of Jeffs

personal effects from the estate inventory. Prepared by
Ms. Colleen Ryan, Executrix, Oxford National Bank

Solution E23-5 (continued)

2.
a Cash (+A) 11,500
Interest receivable (-A) 7,000
b Cash (+A) 800,000
Certificates of deposit (-A) 800,000
c Estate principal 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) 722,000
Estate income (-R,-SE) 4,500
Funeral expenses (-E,+SE) 7,200
Executrix expenses (-E,+SE) 2,500
Devise - J.J. Kara (-E,+SE) 716,800

Chapter 23 23-7
Solution E23-5 (continued)
4. Charge-Discharge Statement
Estate of Jeff Carpenter
Charge-Discharge Statement
For the period of estate administration,
August 25 to September 28, 2013
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
Trust account for Sooner XXV 100,000
Devise paid in cash to J.J. Kara 712,300
Total estate principal discharge $822,000
Estate income
Estate income received during estate administration $4,500
Payment of estate income to J.J. Kara $4,500
Respectfully submitted, Colleen Ryan, Estate Executrix, September

28, 2013.

Solution E23-6
Estate of Kitty
For the period of estate administration
February 20 to 28, 2014
Estate Principal
Assets included in estate inventory total
estate principal charge $500,000
Trust fund income on 2 February 2014 1,042 $501,042

Kitty shelter expenses $500
Medical expenses 200
Hospital expenses 500
Funeral expenses 600
Trust administration expenses 250 $2,050
Devise paid in cash to Mr. Segara 198,992
Mutual fund transferred to Mr. Segara 50,000
Certificate deposit investment transferred to Mr. Segara 250,000
Total estate principal discharge $501,042
Estate Income
Estate income received during estate administration $934.2

Payment of estate income to Mr. Segara $934.2

Chapter 23 23-9
Solution E23-7
Sooner XXV Trust

For the period of trust administration,
September 15 to December 31, 2013
Trust principal
Assets included in trust - total estate principal $100,000

charge
Transfer of money market investment to J.J. Kara $100,000
Trust income
Trust income received during trust administration $1,459
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,

2013.

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
6/3 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

Chapter 23 23-11
Solution E 23-9
Cash (+A) 218,220
Savings accounts (+A) 300,000
Microsystems 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
- To record receipt of property transferred from executor.
Solution E 23-10
a.
Fair value of gross estate $10,600,000
2013 Tax Exempt Estate (5,250,000)
Taxable estate $5,350,000
40% Estate Tax Due $2,140,000
Balance inherited by Emily $8,460,000
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 Dogberts demise.

Solution E 23-11
40% Estate Tax Due $780,000

$6,420,000
Balance inherited by Emily, Laura and Tom
Solution E 23-12
40% Estate Tax Due $7,260,000
Balance inherited by Maggie $16,140,000

Chapter 23 23-13
Solution P 23-1
25 July 2014 Cash principal $10,000

Dividend receivable common $10,000
stock
27 July 2014 Cash principal 5,000

Cash income 5,000
Interests receivable 5,000
Estate income 5,000
30 July 2014 Hospital expenses 5,000

Cash principal 5,000
31 July 2014 Funeral expenses 3,000

Cash - principal 3,000
31 July 2014 Repair expenses for both vilas 300

(2x$150)
Cash - income 300
31 July 2014 Ownership transfer costs (2x$1,000) 2,000

Cash - principal 2,000
31 July 2014 Cash principal 450,000

Cash income 1,854
Certificate of deposit 445,000
Interests receivable on CD 5,000
Estate income 1,854
1 August 2014 Cash and savings principal 500,000

Certificate of deposit 450,000
Stocks held by Gandhi brokerage 150,000
Dividend receivable 10,000
Villa in Bali 50,000
Villa in Raja Ampat 80,000
2011 Lamborghini 120,000
Estate principal 1,360,000
15 August 2014 Devise Deeja Sung 50,000

Devise Gujarati Singh 80,000
Devise Anjat Sung 120,000
Devise Anjit Singh 100,000
Villa in Bali 50,000
Villa in Raja Ampat 80,000
2011 Lamborghini 120,000
Stock 100,000
20 August 2014 Devise Deeja Sung 5,000

Devise - Hambatti 50,000
25 August 2014 Estate principal 415,000

Hospital expenses 5,000
Funeral expenses 3,000

Devise Deeja Sung 55,000

Devise Gujarati Singh 80,000
Devise Anjat Sung 120,000
Devise Anjit Singh 100,000
Devise Hambatti 50,000
Ownership transfer costs 2,000
Estate income 6,854

Distribution to Alis widow 3,427
Panjeet Sung
Distribution to Hambatti Alis 3,427
personal assistant
25 August 2014* Estate principal 950,000

Cash and Saving principal 900,000
To transfer remaining assets to Panjeet Sung trusts
*Remaining account balances

Cash and saving principal $900,000
Estate Principal $ 950,000
Solution P 23-2
Estate of Ali Sung

For the period of estate administration
July 1 to August 25, 2014
Estate Principal
Assets included in estate inventory total
estate principal charge $1,360,000
Accrued interests
5,000
$1,365,000

Hospital expenses $5,000
Funeral expenses 3,000
Ownership transfer costs 2,000
10,000
Devises distributed in kind to:

Devise Deeja Sung (Villa in Bali) 50,000
Devise Gujarati Singh (Villa in Raja Ampat) 80,000
Devise Anjat Sung (Lamborghini) 120,000
Devise Anjit Singh (Stock investment) 100,000
350,000
Devises pain in cash to:
Devise Hambatti 50,000
Devise Deeja Sung 5,000

Chapter 23 23-15
55,000
Transferred to Panjeet Sung trusts:
Stocks held by Gandhi brokerage transferred
to P.S. trusts 50,000
950,000
Total estate principal discharge $1,365,000
Estate Income

Payment of estate income to Alis widow, Panjeet Sung 3,427
Payment of estate income to Alis assistant, Hambatti 3,427
$6,854

Solution P 23-3
Date Accounts Debit Credit
March 15 Cash (+A) 66,500
Dividends receivable (+A) 400
Interest receivable (+A) 2,400
Life insurance receivable (+A) 500,000
Personal residence (+A) 325,000
Household furnishings and personal 76,000

effects (+A)
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 (-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
Estate income (R,+SE) 600
April 19 Land (+A) 18,000
Adjust lakefront property to appraisal.
April 28 Debts of decedent paid (E,-SE) 13,250
Cash (-A) 13,250

Chapter 23 23-17
Solution P 23-3 (continued)

April 29 Cash (+A) 500
Dividends receivable (-A) 400
April 30 Devise - Helen Wilson (Home, furnishings 401,000

and personal effects) (E,-SE)
Devise Helen (cash) (E,-SE) 66,500
Personal residence (-A) 325,000
Household furnishings and personal 76,000

effects (-A)
Cash (-A) 66,500
Transfer cash and property to Helen.
Devise (stocks)- Denise (E,-SE) 25,000
Devise (automobile) - Dennis (E,-SE) 21,000
Devise (cash) - Denise (E,-SE) 350
Devise (cash) Dennis (E, -SE) 350
Automobile (-A) 21,000
Investments in stocks (-A) 25,000
Cash (-A) (Estate Income) 700
Transfer property to Denise & Dennis.
April 30 Assets subsequently discovered (+A) 28,000
Estate income (-R, -SE) 700
Devise - Helen Wilson (-E,+SE) 467,500
Devise - Denise (-E,+SE) 25,350
Devise - Dennis (-E,+SE) 21,350
Debts of decedent paid (-E,+SE) 13,250
Closing entries.

April 30 Estate principal (-SE) 714,750
Cash (-A) 486,750
Investment in bonds (-A) 200,000
Land (-A) 28,000
Transfer estate property to Wilson Family Trust.

Chapter 23 23-19
Solution P 23-4
Estate of George Wilson
March 1 to April 30, 2013
Estate principal
Assets included in estate inventory $1,216,300
Assets subsequently discovered 28,00

0
Assets included in estate inventory - total estate $1,244,300

principal charge
Estate debts paid 13,250
Devise - transfer cash, residence & furnishings to 467,500

Helen
Devise - Transferred automobile to Dennis 21,000
Devise - Transferred stocks to Denise 25,000
Transferred bond investments to Wilson Family Trust 200,000
Transferred Land to Wilson Family Trust 28,000
Transferred cash to Wilson Family Trust 486,750
Estate income
Estate income received during estate administration $700
Payment of estate income to Denise Wilson $350
Payment of estate income to Dennis Wilson 350
Total payments $700
Respectfully submitted, Estate Executrix, April 30, 2013.

Solution P 23-5
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 expense (E,-SE) 165
Cash (-A) 165
June 3 Cash (+A) 2,250
June 15 Distribution to Jimmy Wilson(E,- 8,700

SE)
Cash (-A) 8,700
June 30 Trust expense (E,-SE) 165
Cash (-A) 165

Chapter 23 23-21
Solution P 23-6
May 31 Dividends receivable (+A) 1,200
Interest receivable (+A) 6,750
Automobile (+A) 2,600
Investments in stocks (+A) 52,000
Investments in bonds (+A) 400,000
Estate principal (+SE) 1,212,550
Record estate inventory at fair values.
June 5 Government bonds investment (+A) 200,000
June 15 Cash (+A) 750,000
June 16 Cash (+A) 8,000
June 18 Funeral expenses (E,-SE) 4,300
Cash (-A) 4,300
June 22 Interest receivable (+A) 15,000
Cash (+A) 215,000
Government bonds investment (-A) 200,000
June 23 Cash (+A) 50,000
June 24 Debts of decedent paid (E,-SE) 18,250
Cash (-A) 18,250

June 28 Cash (+A) 1,600
Dividends receivable (-A) 1,200
June 30 Devise (stocks) - Sue (E,-SE) 52,000
Devise (automobile) - Pat (E,-SE) 2,600
Executrix fees (E,-SE) 2,500
Devise - Humane society (E,-SE) 1,650
Automobile (-A) 2,600
Investments in stocks (-A) 52,000
Cash (-A) 4,150
June 30 Assets subsequently discovered (+A) 265,000
Estate income (-R, -SE) 1,650
Devise - Sue (-E,+SE) 52,000
Devise - Pat (-E,+SE) 2,600
Devise - Humane society (-E,+SE) 1,650
Debts of decedent paid (-E,+SE) 18,250
Executrix fees (-E,+SE) 2,500
Closing entries
June 30 Estate principal (-SE) 1,397,900
Cash (-A) 997,900
Investment in bonds (-A) 400,000
Transfer estate property to Josephson Family Trust.

Chapter 23 23-23
Solution P 23-7
Estate of Tom Josephson
May 16 to June 30, 2013
Estate principal
Assets included in estate inventory $1,212,550
Assets subsequently discovered 265,0

00
Assets included in estate inventory - total estate $1,477,550

principal charge
Estate debts paid 18,250
Executrix fees paid 2,500
Devise - Transferred automobile to Pat 2,600
Devise - Transferred stocks to Sue 52,000
Transferred bond investments to Josephson Family 400,000

Trust
Transferred cash to Josephson Family Trust 997,900
Estate income
Payment of estate income to Humane Society $1,650
Respectfully submitted, Estate Executrix, June 30, 2013.

Solution P 23-8
June 30 Cash (+A) 997,900
Investment in Bonds (+A) 400,000
July 5 Certificate of deposit (+A) 750,000
Cash (-A) 750,000
July 31 Trust expense (E,-SE) 275
Cash (-A) 275
August 5 Cash (+A) 3,750
August 19 Distribution to Academy (E,-SE) 15,000
Cash (-A) 15,000

Ch23 Beams12ge SM

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Chapter 23

ESTATES AND TRUSTS

3 A devise is a testamentary disposition of real or personal property.

Copyright 2015 Pearson Education Limited

1 Mortgage claim of Secured Claim other claims

Hospital expenses $1,000

To record payment for hospital expenses and mortgage payable.

Copyright 2015 Pearson Education Limited

Interest receivable - bonds (-A) 11,600

Estate income (R,+SE) 3,400

b Devise - symphony orchestra (E,-SE) 150,000

Cash (-A) 150,000

c Probate expenses (E,-SE) 2,800

Cash (-A) 2,800

d Funeral expenses (E,-SE) 12,800

Cash (-A) 12,800

e Hospital expense (-SE) 44,000

Debt of decedent (+L) 44,000

1 January 2014 Cash $500,000

3 January 2014 Certificate deposit 250,000

15 January 2014 Stock mutual fund 50,000

25 January 2014 Trust fund expenses 500

1 February 2014 Trust fund expenses 200

2 February 2014 Cash 1,042

20 February 2014 Trust fund expenses 500

25 February 2014 Trust fund expenses 600

28 February 2014 Trust fund expenses 250

28 February 2014 Cash 934.2

Copyright 2015 Pearson Education Limited

28 February 2014 Trust find principal 500,000

Melanie Triciao, Testator

Description of Property Fair Value

Savings accounts 250,000

ViaReggio 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

Submitted by K. T. Tim, executor

Description of Property Fair Value

Certificates of deposit, includes $7,000 accrued 807,000

Copyright 2015 Pearson Education Limited

*The probate court permitted exclusion of Jeffs

Copyright 2015 Pearson Education Limited

Solution E23-5 (continued)

a Cash (+A) 11,500

Interest receivable (-A) 7,000

Estate income (R,+SE) 4,500

b Cash (+A) 800,000

Certificates of deposit (-A) 800,000

c Estate principal 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

Estate principal (-SE) 722,000

Estate income (-R,-SE) 4,500

Funeral expenses (-E,+SE) 7,200

Executrix expenses (-E,+SE) 2,500