Chap 019

Chapter 19 - Accounting for Estates and Trusts
Chapter 19
Accounting for Estates and Trusts
Multiple Choice Questions
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.
19-1
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
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.
19-2
9. In an executor's accounting for an estate, debts and other obligations are recorded
A. at book value.
B. at fair value.
C. on the date of payment.
D. as soon as they are 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.
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.
19-3
The terms of a will currently undergoing probate are: "A gift to my brother David of $25,000
cash; to my son James, $50,000 from my savings account; and to my Daughter Lila, all of my
remaining property." At the time of death, the balance in the savings account was $40,000,
and there was additional cash (after payment of funeral expenses and all claims against the
estate) of $70,000.
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.
D. residual legacy.
E. devise.
16. 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. How much would Lila have received from the estate?
A. $0.
B. $40,000.
C. $35,000.
D. $45,000.
E. $30,000.
19-4
The provisions of a will currently undergoing probate are: "Two thousand shares of Dorn
stock to my son; $30,000 in cash from my savings account to my brother; $50,000 in cash to
my daughter; and any remaining property divided equally between my son and daughter."
18. 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.
19. 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. 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. $57,000 cash.
20. 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.
19-5
21. Assume that Bob Smith dies on May 25, 2011. 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.
22. What is the amount of the personal exemption on an estate income tax return?
A. $0.
B. $100.
C. $300.
D. $500.
E. $600.
23. 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.
24. 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.
D. Insurance expenses.
E. Debts incurred prior to death.
19-6
25. 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.
26. 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) All other claims.
A. 1 and 2.
B. 2 and 3.
C. 3 and 4.
D. 1 and 4.
E. 2 and 4.
27. 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.
D. residual legacy.
E. devise.
28. 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.
D. residual legacy.
E. devise.
19-7
29. 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.
D. residual legacy.
E. devise.
30. A gift of any remaining estate property is a

A. general legacy.
B. specific legacy.
D. residual legacy.
E. devise.
The provisions of a will currently undergoing probate are: "One thousand shares of Wal-mart
my daughter; and any remaining property divided equally between my son and daughter." At
the time of death, the estate included 1,400 shares of Wal-mart stock and $25,000 cash in the
savings account.
31. 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
32. 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
19-8
33. The provisions of a will currently undergoing probate are: "One thousand shares of Wal-
mart stock to my son; $10,000 in cash from my savings account to my brother; $5,000 in cash
to my daughter; and any remaining property divided equally between my son and daughter."
At the time of death, the estate included 1,000 shares of Wal-mart 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.
34. 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.
35. 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.
19-9
36. Jim Bowie died on April 1, 2011. The estate has the following gross asset valuation
information:
The estate tax will be calculated using:

A. $73,000.
B. $75,000.
C. $76,000.
D. $80,000.
E. $81,000.
37. 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.
38. 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.
39. For which type of trust is the income taxed in the grantor's individual income tax return?
A. Inter vivos trust.
B. Grantor trust.
C. Revocable living trust.
D. Family trust.
E. Irrevocable life insurance trust.
19-10
40. Which of the following is not a trust used for estate planning?
A. Minor's Section 2503(c) trust.
B. Alimony trust.
C. Credit shelter trust.
D. Revocable living trust.
E. Grantor retained annuity trust.
19-11
Matching Questions
41. 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.
1. Adjustment to the principal of the estate Homestead allowance ____

2. Allocated between the principal and
income of the estate determined by
existence at date of death Insurance expenses ____
income of the estate in some fair manner Executor's fee ____
Life insurance proceeds
4. Adjustment to the principal of the estate when estate is beneficiary ____
5. Adjustment to the principal of the estate Investment commissions ____
Debts incurred prior to
6. Adjustment to the income of the estate death ____
Water and other utility
7. Adjustment to the income of the estate expenses ____
8. Adjustment to the income of the estate Liquidating dividends ____
9. Adjustment to the principal of the estate Dividend income ____
10. Adjustment to the income of the estate Funeral expenses ____
income of the estate determined by Extraordinary repairs on
existence at date of death income-producing property ____
income of the estate in some fair manner Attorney fees ____
13. Adjustment to the principal of the estate Property taxes ____
Gains and losses on the sale
14. Adjustment to the principal of the estate of securities ____
income of the estate in some fair manner Interest income ____
income of the estate in some fair manner Court costs ____
Ordinary repairs on
17. Adjustment to the principal of the estate income-producing property ____
18. Adjustment to the principal of the estate Accounting fees ____
19-12
Essay Questions
42. What is meant by estate accounting?
43. What is meant by "an individual dies intestate"?
44. In settling an estate, what is the meaning of the term devise?
45. What is the purpose of the Uniform Probate Code?
19-13
46. How may real property be treated in identifying estate property subject to probate?
47. What choices does an executor of an estate have in determining the values of assets
included in the estate for tax purposes?
48. What is a remainderman of trust property?
49. What are the three goals of probate laws?
19-14
50. What is the difference between an executor and an administrator?
51. What are the four levels of claims in the order of priority of the Uniform Probate Code?
52. In settling an estate, what is the meaning of the term legacy?
19-15
53. The estate of Kent Talbert reported the following information:
Required:
Prepare a schedule to show the amount of the taxable estate.
During the most recent year, an estate generated income of $26,000:
The interest income was conveyed immediately to the beneficiary stated in the decedent's
will. Dividends of $1,560 were given to the decedent's church.
54. Prepare a schedule to show the amount of taxable income.
19-16
55. Prepare a schedule to show the amount of federal income tax that must be paid.
56. The executor of the estate of Yelbert Toper recorded the following information:
Assets discovered at death (at fair value):
Debts of $22,100 still remain to be paid. The shares of Dell stock were conveyed to the
appropriate beneficiary. Executor fees are allocated based on total charges for principal and
for income.
Required:
Prepare a charge and discharge statement for this estate.
19-17
The following information pertains to 11 separate questions.

The executor of the Estate of Kate Tweed discovered the following assets (at fair value):
The will of Kate Tweed had the following provisions:

$195,000 in cash went to Victor Vickery.
All shares of PepsiCo went to Duchess Doyle.
The residence went to Louis Tweed.
All other estate assets were to be liquidated with the resulting cash going to the Sacred
Church of Liberty, Missouri.
57. Prepare the journal entry to record the property of the estate.
58. For the Estate of Kate Tweed, interest of $9,100 was collected.
Prepare the journal entry to record the collection.
19-18
59. Funeral expenses of $26,000 were paid.

Prepare the journal entry to record the transaction.
60. Debts of $52,000 were discovered.

61. An additional savings account of $15,600 was located by the executor.

62. Title to the residence was conveyed to Louis Tweed.

19-19
63. The life insurance policy was collected.

64. Additional debts of $78,000 were discovered. Debts totaling $130,000 were paid.
65. Cash of $195,000 was conveyed to the appropriate beneficiary.

66. The shares of Kodak were sold for $145,600.

19-20
67. Administrative expenses of $13,000 were paid.

68. An inter vivos trust was created by Isaac Posney. Isaac owned a large department store in
Juggins, Utah. Adjacent to the store, Isaac also owned a tract of land that was used as an extra
parking lot when the store was having a sale or during the Christmas season. Isaac expected
the land to appreciate in value and eventually be sold for an office complex or additional
stores.
Isaac placed the land into a charitable lead trust which would hold the land for ten years until
Isaac's son would turn 21. At that time, title would be transferred to the son. The store will
pay rent to use the land during the interim. The income generated each year from this usage
will be given to a local church. The land was currently valued at $416,000.
During the first year of this arrangement, the trustee recorded the following cash transactions:
Required:
Prepare all required journal entries for this trust fund including the entry to create the trust.
19-21
69. During the current year, an estate generates the following income amounts: Rental income
$10,000, Interest income 4,000, Dividend income 6,000. The rental income is conveyed
immediately to the beneficiary stated in the decedent's will. Dividends of $2,000 are donated
to the decedent's church. What amount of federal income tax must be paid by the estate?
The executor of Danny Mack's estate has listed the following properties at fair value: Cash
$200,000, Life Insurance Receivable $500,000, Investment in Stocks and Bonds $50,000,
Rental Property $100,000, and Personal Property $80,000. Additionally, the executor found
$100,000 of various debts incurred before the decedent's death. The cost of Danny Mack's
funeral was $20,000.
71. Prepare the journal entry for claims of $100,000 made against the estate for various debts
incurred before the decedent's death, and $20,000 for funeral expense bills.
19-22
72. Prepare the journal entry to record interest of $5,000 that was earned on the bonds of the
estate. Of this amount, $2,000 had been earned prior to death.
73. Prepare the journal entry to record ordinary repairs to the rental property of $5,000.
74. Prepare the journal entry to record the payment of the estate's liabilities for debts incurred
prior to the decedent's death.
75. Prepare the journal entry to record the sales of the stocks and bonds for $120,000.
19-23
76. Prepare the journal entry to record the collection of rental income of $10,000. $1,000 had
been earned prior to the decedent's death.
77. Prepare the journal entry to record the distribution of $4,000 to Anna Lee, an income
beneficiary.
78. Prepare the journal entry to record the collection of the life insurance policy.
79. Prepare the journal entry to record payment of $20,000 in funeral expenses.
19-24
80. Prepare a Charge and Discharge Statement for the estate.
19-25
Chapter 19 Accounting for Estates and Trusts Answer Key
Multiple Choice Questions
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.
AACSB: Reflective thinking

AICPA BB: Legal
AICPA FN: Research
Bloom's: Knowledge
Difficulty: Easy
Learning Objective: 19-01 Understand the proper methods of accounting for and administering an estate and the corresponding legal
terminology.
19-26
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.

AICPA BB: Legal
Bloom's: Knowledge
Difficulty: Easy
terminology.
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.

AICPA BB: Legal
Bloom's: Knowledge
Difficulty: Easy
terminology.
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.

AICPA BB: Legal
Bloom's: Knowledge
Difficulty: Easy
Learning Objective: 19-02 Describe the types of estate distributions and identify the process of asset allocations and distributions from an
estate.
19-27
5. A demonstrative legacy is a

AICPA BB: Legal
Bloom's: Knowledge
Difficulty: Medium
estate.
6. In a will, a devise is a

AICPA BB: Legal
Bloom's: Knowledge
Difficulty: Easy
estate.
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.

AICPA BB: Legal
AICPA FN: Research
Bloom's: Knowledge
Difficulty: Easy
Learning Objective: 19-04 Understand and account for the distinction between principal and income in the context of estate and trust
accounting.
19-28
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.

AICPA BB: Legal
Bloom's: Knowledge
Difficulty: Medium
accounting.
9. In an executor's accounting for an estate, debts and other obligations are recorded
A. at book value.
B. at fair value.
C. on the date of payment.
D. as soon as they are discovered.
E. only if they are past due.

AICPA BB: Legal
AICPA FN: Measurement
Bloom's: Knowledge
Difficulty: Medium
terminology.
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.

AICPA BB: Legal
Bloom's: Knowledge
Difficulty: Easy
Learning Objective: 19-05 Describe the financial statements and journal entries utilized to account for estate and trust transactions.
19-29
11. Which of the following is usually accounted for as an adjustment to a trust's principal?
A. Repairs expense.
B. Rent expense.
E. Property taxes.

AICPA BB: Legal
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 19-06 Describe various trusts and their proper use.
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.
E. Property taxes.

AICPA BB: Legal
Bloom's: Knowledge
Difficulty: Medium
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.

AICPA BB: Legal
Bloom's: Knowledge
Difficulty: Easy
19-30
The terms of a will currently undergoing probate are: "A gift to my brother David of $25,000
cash; to my son James, $50,000 from my savings account; and to my Daughter Lila, all of my
remaining property." At the time of death, the balance in the savings account was $40,000,
and there was additional cash (after payment of funeral expenses and all claims against the
estate) of $70,000.
14. The gift to David is a

A. general legacy.
B. specific legacy.
D. residual legacy.
E. devise.

AICPA BB: Legal
Bloom's: Comprehension
Difficulty: Medium
estate.
15. The gift to James is a

A. general legacy.
B. specific legacy.
D. residual legacy.
E. devise.

AICPA BB: Legal
Difficulty: Medium
estate.
19-31
16. How much would James have received from the estate?
A. $50,000.
B. $40,000.
C. $25,000.
D. $45,000.
E. $30,000.
AACSB: Analytic
AICPA BB: Legal
Bloom's: Application
Difficulty: Medium
estate.
17. How much would Lila have received from the estate?
A. $0.
B. $40,000.
C. $35,000.
D. $45,000.
E. $30,000.
AACSB: Analytic
AICPA BB: Legal
Difficulty: Medium
estate.
The provisions of a will currently undergoing probate are: "Two thousand shares of Dorn
my daughter; and any remaining property divided equally between my son and daughter."
19-32
18. 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.
AACSB: Analytic
AICPA BB: Legal
Difficulty: Hard
estate.
19. 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. 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. $57,000 cash.
AACSB: Analytic
AICPA BB: Legal
Difficulty: Medium
estate.
19-33
20. Which of the following is not subtracted to arrive at the taxable value of an estate?
A. Liabilities.
B. Charitable bequests.
D. Estate administration expenses.
E. Deduction for property conveyed to children of decedent.

AICPA BB: Legal
Bloom's: Knowledge
Difficulty: Easy
Learning Objective: 19-03 Understand the federal estate tax and state inheritance tax systems; the corresponding exemptions; and tax
planning opportunities.
21. Assume that Bob Smith dies on May 25, 2011. 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.
AACSB: Analytic
AICPA BB: Legal
Difficulty: Medium
19-34
22. What is the amount of the personal exemption on an estate income tax return?
A. $0.
B. $100.
C. $300.
D. $500.
E. $600.

AICPA BB: Legal
Bloom's: Knowledge
Difficulty: Easy
23. 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.

AICPA BB: Legal
Bloom's: Knowledge
Difficulty: Medium
accounting.
19-35
24. 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.
D. Insurance expenses.
E. Debts incurred prior to death.

AICPA BB: Legal
Bloom's: Knowledge
Difficulty: Medium
accounting.
25. 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.

AICPA BB: Legal
AICPA FN: Research
Difficulty: Medium
terminology.
19-36
26. 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) All other claims.
A. 1 and 2.
B. 2 and 3.
C. 3 and 4.
D. 1 and 4.
E. 2 and 4.

AICPA BB: Legal
Bloom's: Knowledge
Difficulty: Medium
terminology.
27. 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.
D. residual legacy.
E. devise.

AICPA BB: Legal
Difficulty: Easy
estate.
19-37
28. 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.
D. residual legacy.
E. devise.

AICPA BB: Legal
Difficulty: Medium
estate.
29. 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.
D. residual legacy.
E. devise.

AICPA BB: Legal
Difficulty: Medium
estate.
30. A gift of any remaining estate property is a

A. general legacy.
B. specific legacy.
D. residual legacy.
E. devise.

AICPA BB: Legal
Bloom's: Knowledge
Difficulty: Easy
estate.
19-38
The provisions of a will currently undergoing probate are: "One thousand shares of Wal-mart
my daughter; and any remaining property divided equally between my son and daughter." At
the time of death, the estate included 1,400 shares of Wal-mart stock and $25,000 cash in the
savings account.
31. 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
AACSB: Analytic
AICPA BB: Legal
Difficulty: Medium
estate.
32. 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
AACSB: Analytic
AICPA BB: Legal
Difficulty: Hard
estate.
19-39
33. The provisions of a will currently undergoing probate are: "One thousand shares of Wal-
mart stock to my son; $10,000 in cash from my savings account to my brother; $5,000 in cash
to my daughter; and any remaining property divided equally between my son and daughter."
At the time of death, the estate included 1,000 shares of Wal-mart 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.
AACSB: Analytic
AICPA BB: Legal
Difficulty: Medium
estate.
34. 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.
AACSB: Analytic
AICPA BB: Legal
Difficulty: Medium
19-40
35. 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.

AICPA BB: Legal
Bloom's: Knowledge
Difficulty: Medium
accounting.
36. Jim Bowie died on April 1, 2011. The estate has the following gross asset valuation
information:
The estate tax will be calculated using:

A. $73,000.
B. $75,000.
C. $76,000.
D. $80,000.
E. $81,000.
AACSB: Analytic
AICPA BB: Legal
Difficulty: Medium
19-41
37. 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.

AICPA BB: Legal
Bloom's: Knowledge
Difficulty: Medium
terminology.
38. 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.

AICPA BB: Legal
Bloom's: Knowledge
Difficulty: Medium
estate.
39. For which type of trust is the income taxed in the grantor's individual income tax return?
A. Inter vivos trust.
B. Grantor trust.
C. Revocable living trust.
D. Family trust.
E. Irrevocable life insurance trust.

AICPA BB: Legal
Bloom's: Knowledge
Difficulty: Easy
19-42
40. Which of the following is not a trust used for estate planning?
A. Minor's Section 2503(c) trust.
B. Alimony trust.
C. Credit shelter trust.
D. Revocable living trust.
E. Grantor retained annuity trust.
AACSB: Analytic
AICPA BB: Legal
Bloom's: Analysis
Difficulty: Medium
19-43
Matching Questions
41. 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.
1. Adjustment to the principal of the estate Homestead allowance 1

2. Allocated between the principal and income
of the estate determined by existence at date of
death Insurance expenses 6
3. Allocated between the principal and income
of the estate in some fair manner Executor's fee 3
Life insurance proceeds
4. Adjustment to the principal of the estate when estate is beneficiary 1
5. Adjustment to the principal of the estate Investment commissions 1
Debts incurred prior to
6. Adjustment to the income of the estate death 1
Water and other utility
7. Adjustment to the income of the estate expenses 6
8. Adjustment to the income of the estate Liquidating dividends 1
9. Adjustment to the principal of the estate Dividend income 2
10. Adjustment to the income of the estate Funeral expenses 1
income of the estate determined by existence Extraordinary repairs on
at date of death income-producing property 1
income of the estate in some fair manner Attorney fees 3
13. Adjustment to the principal of the estate Property taxes 6
Gains and losses on the sale
14. Adjustment to the principal of the estate of securities 1
income of the estate in some fair manner Interest income 2
income of the estate in some fair manner Court costs 3
Ordinary repairs on income-
17. Adjustment to the principal of the estate producing property 6
18. Adjustment to the principal of the estate Accounting fees 3

AICPA BB: Legal
Difficulty: Medium
accounting.
19-44
Essay Questions
42. What is meant by estate accounting?
Estate accounting refers to the recording and reporting of financial events from the time of a
person's death until the ultimate distribution of all property.

AICPA BB: Legal
Bloom's: Knowledge
Difficulty: Easy
terminology.
43. What is meant by "an individual dies intestate"?
If an individual dies intestate then that person did not create a legal will prior to death.
Therefore, there is no executor or executrix and the court will appoint an
administrator/administratrix to attend to fiduciary estate responsibilities.

AICPA BB: Legal
Difficulty: Easy
terminology.
44. In settling an estate, what is the meaning of the term devise?
A devise is a gift of real property such as land or a building.

AICPA BB: Legal
Difficulty: Easy
estate.
19-45
45. What is the purpose of the Uniform Probate Code?
The purpose of the Uniform Probate Code is to encourage consistent laws governing wills
and estates among the states.

AICPA BB: Legal
AICPA FN: Research
Difficulty: Easy
terminology.
46. How may real property be treated in identifying estate property subject to probate?
In some states, real property is conveyed directly to the beneficiary or co-owner at the time of
death and would not be included in the inventory of estate.

AICPA BB: Legal
Bloom's: Knowledge
Difficulty: Medium
terminology.
47. What choices does an executor of an estate have in determining the values of assets
included in the estate for tax purposes?
The fair value of property must be determined at the date of death or on the alternative
valuation date (six months after death or the date of disposition after death, whichever is
earlier), at the option of the executor.

AICPA BB: Legal
Bloom's: Knowledge
Difficulty: Medium
19-46
48. What is a remainderman of trust property?
A remainderman of trust property is a person who receives the principal from a trust after
someone else has received income from the trust for a given period of time.

AICPA BB: Legal
Bloom's: Knowledge
Difficulty: Easy
49. What are the three goals of probate laws?
Probate laws generally are designed to (1) gather, preserve, and account for all of the
decedent's property; (2) carry out an orderly and fair settlement of all debts; and (3) discover
the decedent's intent for the remaining property held at death and then follow those wishes.

AICPA BB: Legal
Bloom's: Knowledge
Difficulty: Medium
terminology.
50. What is the difference between an executor and an administrator?
An executor is a specific person named in the will to fulfill the fiduciary responsibilities of
satisfying all applicable laws and making certain that the decedent's wishes are achieved, if
possible. If the will does not designate an executor, or the named executor is unwilling or
unable to serve, an administrator is appointed by the court to fulfill the same responsibilities.

AICPA BB: Legal
Difficulty: Easy
terminology.
19-47
51. What are the four levels of claims in the order of priority of the Uniform Probate Code?
The order of priority is as follows: (1) expenses of administering the estate, (2) funeral
expenses and medical expenses of the last illness, (3) debts and taxes given preference under
federal and state laws, and (4) all other claims.

AICPA BB: Legal
Bloom's: Knowledge
Difficulty: Medium
terminology.
52. In settling an estate, what is the meaning of the term legacy?
A legacy, also called a bequest, is a gift of personal property such as stocks or furniture.

AICPA BB: Legal
Bloom's: Knowledge
Difficulty: Easy
estate.
19-48
53. The estate of Kent Talbert reported the following information:
Required:
Prepare a schedule to show the amount of the taxable estate.
AACSB: Analytic
AICPA BB: Legal
Difficulty: Medium
During the most recent year, an estate generated income of $26,000:
The interest income was conveyed immediately to the beneficiary stated in the decedent's
will. Dividends of $1,560 were given to the decedent's church.
19-49
54. Prepare a schedule to show the amount of taxable income.
AACSB: Analytic
AICPA BB: Legal
Difficulty: Medium
55. Prepare a schedule to show the amount of federal income tax that must be paid.
AACSB: Analytic
AICPA BB: Legal
Difficulty: Medium
19-50
56. The executor of the estate of Yelbert Toper recorded the following information:
Assets discovered at death (at fair value):
Debts of $22,100 still remain to be paid. The shares of Dell stock were conveyed to the
appropriate beneficiary. Executor fees are allocated based on total charges for principal and
for income.
Required:
Prepare a charge and discharge statement for this estate.
19-51
19-52
AACSB: Analytic
AICPA BB: Legal
Difficulty: Hard
The following information pertains to 11 separate questions.

The executor of the Estate of Kate Tweed discovered the following assets (at fair value):
The will of Kate Tweed had the following provisions:

$195,000 in cash went to Victor Vickery.
All shares of PepsiCo went to Duchess Doyle.
The residence went to Louis Tweed.
All other estate assets were to be liquidated with the resulting cash going to the Sacred
Church of Liberty, Missouri.
AACSB: Analytic
AICPA BB: Legal
Difficulty: Easy
accounting.
19-53
58. For the Estate of Kate Tweed, interest of $9,100 was collected.
Prepare the journal entry to record the collection.
AACSB: Analytic
AICPA BB: Legal
Difficulty: Easy
accounting.
59. Funeral expenses of $26,000 were paid.

AACSB: Analytic
AICPA BB: Legal
Difficulty: Easy
accounting.
60. Debts of $52,000 were discovered.

No entry is required, since debts are only recorded by an estate when they are paid.
AACSB: Analytic
AICPA BB: Legal
Difficulty: Medium
accounting.
19-54
61. An additional savings account of $15,600 was located by the executor.

AACSB: Analytic
AICPA BB: Legal
Difficulty: Easy
accounting.
62. Title to the residence was conveyed to Louis Tweed.

AACSB: Analytic
AICPA BB: Legal
Difficulty: Easy
accounting.
63. The life insurance policy was collected.

AACSB: Analytic
AICPA BB: Legal
Difficulty: Easy
accounting.
19-55
64. Additional debts of $78,000 were discovered. Debts totaling $130,000 were paid.
AACSB: Analytic
AICPA BB: Legal
Difficulty: Medium
accounting.
65. Cash of $195,000 was conveyed to the appropriate beneficiary.

AACSB: Analytic
AICPA BB: Legal
Difficulty: Easy
accounting.
66. The shares of Kodak were sold for $145,600.

AACSB: Analytic
AICPA BB: Legal
Difficulty: Medium
accounting.
19-56
67. Administrative expenses of $13,000 were paid.

AACSB: Analytic
AICPA BB: Legal
Difficulty: Easy
accounting.
19-57
68. An inter vivos trust was created by Isaac Posney. Isaac owned a large department store in
Juggins, Utah. Adjacent to the store, Isaac also owned a tract of land that was used as an extra
parking lot when the store was having a sale or during the Christmas season. Isaac expected
the land to appreciate in value and eventually be sold for an office complex or additional
stores.
Isaac placed the land into a charitable lead trust which would hold the land for ten years until
Isaac's son would turn 21. At that time, title would be transferred to the son. The store will
pay rent to use the land during the interim. The income generated each year from this usage
will be given to a local church. The land was currently valued at $416,000.
During the first year of this arrangement, the trustee recorded the following cash transactions:
Required:
Prepare all required journal entries for this trust fund including the entry to create the trust.
19-58
AACSB: Analytic
AICPA BB: Legal
Difficulty: Medium
69. During the current year, an estate generates the following income amounts: Rental income
$10,000, Interest income 4,000, Dividend income 6,000. The rental income is conveyed
immediately to the beneficiary stated in the decedent's will. Dividends of $2,000 are donated
to the decedent's church. What amount of federal income tax must be paid by the estate?
AACSB: Analytic
AICPA BB: Legal
Difficulty: Medium
The executor of Danny Mack's estate has listed the following properties at fair value: Cash
$200,000, Life Insurance Receivable $500,000, Investment in Stocks and Bonds $50,000,
Rental Property $100,000, and Personal Property $80,000. Additionally, the executor found
$100,000 of various debts incurred before the decedent's death. The cost of Danny Mack's
funeral was $20,000.
19-59
AACSB: Analytic
AICPA BB: Legal
Difficulty: Easy
accounting.
71. Prepare the journal entry for claims of $100,000 made against the estate for various debts
incurred before the decedent's death, and $20,000 for funeral expense bills.
No entry needed until liabilities are paid.
AACSB: Analytic
AICPA BB: Legal
Difficulty: Medium
accounting.
19-60
72. Prepare the journal entry to record interest of $5,000 that was earned on the bonds of the
estate. Of this amount, $2,000 had been earned prior to death.
AACSB: Analytic
AICPA BB: Legal
Difficulty: Medium
accounting.
73. Prepare the journal entry to record ordinary repairs to the rental property of $5,000.
(Ordinary repair expenses are made to rental property and are generally charged to income
rather than principal.)
AACSB: Analytic
AICPA BB: Legal
Difficulty: Easy
accounting.
19-61
74. Prepare the journal entry to record the payment of the estate's liabilities for debts incurred
prior to the decedent's death.
AACSB: Analytic
AICPA BB: Legal
Difficulty: Medium
accounting.
75. Prepare the journal entry to record the sales of the stocks and bonds for $120,000.
(To record sale of stocks and to reflect gain on such sale with the additional proceeds
becoming part of the estate's principal.)
AACSB: Analytic
AICPA BB: Legal
Difficulty: Medium
accounting.
19-62
76. Prepare the journal entry to record the collection of rental income of $10,000. $1,000 had
been earned prior to the decedent's death.
(To record receipt of rental income. The $1,000 earned prior to the decedent's death was not
included in original listing of estate assets and is therefore an asset subsequently discovered.)
AACSB: Analytic
AICPA BB: Legal
Difficulty: Medium
accounting.
77. Prepare the journal entry to record the distribution of $4,000 to Anna Lee, an income
beneficiary.
AACSB: Analytic
AICPA BB: Legal
Difficulty: Easy
accounting.
19-63
78. Prepare the journal entry to record the collection of the life insurance policy.
AACSB: Analytic
AICPA BB: Legal
Difficulty: Easy
accounting.
79. Prepare the journal entry to record payment of $20,000 in funeral expenses.
AACSB: Analytic
AICPA BB: Legal
Difficulty: Easy
accounting.
19-64
80. Prepare a Charge and Discharge Statement for the estate.
AACSB: Analytic
AICPA BB: Legal
Difficulty: Hard
19-65

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Chapter 19 - Accounting for Estates and Trusts

Multiple Choice Questions

2. Under what circumstance does an estate have an executor?

4. What is the process of abatement?

8. Executor's fees and court costs for settling an estate usually

10. A testamentary trust is a trust

13. The trustor is the

14. The gift to David is a

15. The gift to James is a

25. What are the goals of probate laws?

30. A gift of any remaining estate property is a

The estate tax will be calculated using:

1. Adjustment to the principal of the estate Homestead allowance ____

42. What is meant by estate accounting?

43. What is meant by "an individual dies intestate"?

44. In settling an estate, what is the meaning of the term devise?

45. What is the purpose of the Uniform Probate Code?

48. What is a remainderman of trust property?

49. What are the three goals of probate laws?

50. What is the difference between an executor and an administrator?

52. In settling an estate, what is the meaning of the term legacy?

53. The estate of Kent Talbert reported the following information:

During the most recent year, an estate generated income of $26,000:

54. Prepare a schedule to show the amount of taxable income.

The following information pertains to 11 separate questions.

The will of Kate Tweed had the following provisions:

59. Funeral expenses of $26,000 were paid.

60. Debts of $52,000 were discovered.

61. An additional savings account of $15,600 was located by the executor.

62. Title to the residence was conveyed to Louis Tweed.

63. The life insurance policy was collected.

65. Cash of $195,000 was conveyed to the appropriate beneficiary.

66. The shares of Kodak were sold for $145,600.

67. Administrative expenses of $13,000 were paid.

80. Prepare a Charge and Discharge Statement for the estate.

Chapter 19 Accounting for Estates and Trusts Answer Key

Multiple Choice Questions

AACSB: Reflective thinking

2. Under what circumstance does an estate have an executor?

AACSB: Reflective thinking

AACSB: Reflective thinking

4. What is the process of abatement?

AACSB: Reflective thinking

AACSB: Reflective thinking

AACSB: Reflective thinking

AACSB: Reflective thinking

8. Executor's fees and court costs for settling an estate usually

AACSB: Reflective thinking

AACSB: Reflective thinking

10. A testamentary trust is a trust

AACSB: Reflective thinking

AACSB: Reflective thinking

AACSB: Reflective thinking

13. The trustor is the

AACSB: Reflective thinking

14. The gift to David is a

AACSB: Reflective thinking

15. The gift to James is a

AACSB: Reflective thinking

AACSB: Reflective thinking

AACSB: Reflective thinking

AACSB: Reflective thinking