chapter 15, modern advanced accounting-review q & exr

CHAPTER 15ESTATES AND TRUSTS

The title of each problem is followed by the estimated time in minutes required for completion and by a difficulty rating. The time estimates are applicable for students using the partially filled-in working papers.

Pr. 15–1 Estate of Mildred Young (20 minutes, easy)

Prepare a charge and discharge statement for estate from accounts in a trial balance.

Pr. 15–2 Estate of Pablo Garcia (35 minutes, easy)

Journal entries for estate, including closing entry. Charge and discharge statement for estate and journal entry to establish the accounting records for testamentary trust.

Pr. 15–3 Estate of Janet Mann (60 minutes, medium)

Prepare a charge and discharge statement for estate, following provisions of the will relating to activities of executor.

Pr. 15–4 Estate of Frederick Doheny (75 minutes, strong)

Prepare a charge and discharge statement for estate, distinguishing between estate principal and income. Exhibits supporting various items in the charge and discharge statement also are required.

ANSWERS TO REVIEW QUESTIONS

1. No, the Uniform Probate Code is not in effect throughout the United States.

2. a. An estate is all the property of a decedent, trust, or other person whose affairs are subject to the Uniform Probate Code.

b. Intestacy is the absence of a will for a decedent.

c. A testator is a person who creates a will.

d. An executor is the personal representative of a decedent named in the decedent's will.

e. An administrator is the personal representative of an intestate decedent.

f. Letters testamentary are legal documents issued by the probate court to the personal representative of a decedent as authority to commence administration of the decedent's estate.

g. A devise is a transfer of real or personal property by means of a will.

h. A remainderman is the beneficiary of a trust who receives the principal property at the termination of the trust.

i. An inter vivos trust is a trust established during the lifetime of the donor.

j. A settlor is the creator of a trust; a settlor also is known as a donor or trustor.

3. Informal probate of a will under provisions of the Uniform Probate Court requires the filing of an application by an interested party with the probate court. After reviewing the application, the registrar of the court issues a written statement that makes the will effective. Formal probate is litigation to determine whether a decedent left a valid will. Formal probate involves court hearings, appearances by witnesses, and other aspects of formal litigation.

4. The standards of care required of a personal representative are the same as the standards required of a trustee. Both fiduciaries must meet the standards of care that a prudent person would observe in managing the property of others.

The McGraw-Hill Companies, Inc., 2006Solutions Manual, Chapter 15 423

5. There must be a distinction between principal and income in the administration of an estate because the income beneficiary of an estate or a testamentary trust often is a different person or organization from the principal beneficiary of the estate or trust.

6. The exempt property and allowances provisions of the Uniform Probate Code are as follows:

(1) Homestead allowance of a specified amount to the decedent's surviving spouse or surviving minor and dependent children

(2) Exempt property consisting of a specified aggregate value of automobiles, household furniture and furnishings, appliances, and personal effects to the decedent's surviving spouse or children

(3) Family allowance in cash not to exceed a specified lump sum, or installments of one-twelfth of the specified sum a month for one year, during administration of the estate

7. a. Specific devise

b. General devise

c. General devise

d. Specific devise

e. Residuary devise

8. The accrual basis of accounting always is used for the inventory of the decedent's property as of the date of death, in order to facilitate the distinction between principal and income during the administration of the estate. There is seldom any other use for the accrual basis of accounting in the administration of an estate or a trust. However, if the decedent's will or the trust document requires use of the accrual basis of accounting by the personal representative or the trustee, it must be used.

9. The Revised Uniform Principal and Income Act requires a charge to estate income for a reasonable provision for depreciation, computed in accordance with generally accepted accounting principles.

10. The Property Discovered ledger account is used to record the accountability of the personal representative of the estate for estate property discovered after the original inventory of estate property has been filed with the probate court.

11. The charge and discharge statement prepared for the personal representative (executor or administrator) of an estate is wholly unlike the financial statements issued for a business enterprise. The charge and discharge statement presents the personal representative's accountability for estate property, and the representative's actions in carrying out that accountability. In contrast, the financial statements for a business enterprise present the financial position, results of operations, and cash flows of the enterprise.

12. The journal entries for estates and trusts are similar in that they must show the fiduciaries' accountability for property of the estate or trust. The journal entries are dissimilar in that an estate is liquidated rapidly and its affairs completed, while a trust continues its activities for the period specified in the trust document. Thus, numerous journal entries are made for the investment activities of a trustee; rarely are there comparable entries for the personal representative of an estate.

The McGraw-Hill Companies, Inc., 2006424 Modern Advanced Accounting, 10/e

SOLUTIONS TO EXERCISES

Ex. 15–1 1. d 8. a2. a 9. c3. b 10. a4. a 11. c5. c 12. b6. b 13. d7. c 14. b

Ex. 15–2 a. Depreciation of building should be charged against trust income, unless the trustor has indicated that the income beneficiaries are to receive the full cash-basis income of the trust.

b. Legal fees for managing trust property are charged against trust income.

c. Special assessment tax levied on real property for street improvements generally is considered a capital expenditure and is charged against trust principal. If the tax were considered to be of primary benefit to the income beneficiaries, it would be charged against trust income.

d. Interest on mortgage note payable accrued on the date that the trust was created is charged against trust principal; interest accrued after that date is charged against trust income.

e. Loss on disposal of trust investments is charged against trust principal.

f. Major repairs to real property prior to disposal of the property are charged against trust principal.

Ex. 15–3 Distribution of property of Estate of Allen Baker, Deceased, Apr. 30, 2006:

Administrative costs (cash) $40,000*Specific devise to Barbara Baker (Southeastern Airlines 7% bonds) 21,120General devise to Carl Baker (BBM Company common stock) [($9,900 –

$5,020) x ½] 2,440General devise to Danielle Baker (BBM Company common stock) [($9,900

– $5,020) x ½] 2,440Residuary devise to Edie Baker 0 Total estate property $66,000

*Cash in checking account ($13,860), plus cash from matured bank certificate of deposit ($21,120), plus cash from disposal of part of BBM Company common stock ($5,020).


Ex. 15–4 Distribution of devises of Estate of Rhoda Ross, Deceased, Dec. 17, 2006:Devisee Type of

deviseGross devise

amountAbated amount

Net devise amount

Leah Ross Specific $ 60,000 $ 60,000Univ. of Carlin Specific 60,000 60,000Ward Ross General 27,500* 27,500Music Center Fund General 50,000† 50,000Roberta Jones Residuary 27,500 * $10,000 † 17,500

Totals $225,000 $10,000 $215,000

*$55,000 x 0.50 = $27,500.†$10,000 must be realized from sale of Engle Corporation bonds to provide sufficient cash for the Music Center Fund devise.

Ex. 15–5 Journal entries for executor of the will of Lincoln Johnson, Deceased:

2006Dec. 6 Common Stock of Coburn Company 6,000

Property Discovered 6,000

14 Devises Distributed 2,500Principal Cash 2,500

26 Administrative Costs 1,000Principal Cash 1,000

31 Liabilities Paid 9,200Principal Cash 9,200

Ex. 15–6 Journal entries for executor of the will of D. C. Kane, Deceased:

2006Oct. 20 Principal Cash 88,800

Real Property 148,000Arriba Company Common Stock 60,000Carter Corporation Bonds 40,000Interest Receivable 600Personal and Household Effects 23,500

Estate Principal Balance 360,900

29 Basin Corporation Common Stock 9,000Property Discovered 9,000

Nov. 10 Principal Cash 520Payable to Edward Kane, Devisee 520

15 Liabilities Paid 30,000Principal Cash 30,000

22 Administrative Costs 3,240Principal Cash 3,240

29 Principal Cash [($40,000 x 0.94) + $600] 38,200Income Cash ($1,050 – $600) 450Loss on Disposal of Principal Property ($40,000 x 0.06) 2,400

Carter Corporation Bonds 40,000Interest Receivable 600Interest Revenue 450

(continued)Nov. 30 Devises Distributed 60,000


Payable to Edward Kane, Devisee 520Arriba Company Common Stock 60,000Principal Cash 520

Ex. 15–7 Correcting journal entries for Lillian Crane, executor of the will of Marion Wilson, May 31, 2006:

2006May 31 Estate Principal Balance 10,400

Property Discovered 10,400To correct journal entry for property discovered.

31 Distributions to Income Beneficiaries 800Distribution Expense 800

To correct journal entry to record distribution of income cash to residuary devisee.

31 Liabilities Paid 7,400Accounts Payable 7,400

To correct journal entry to record payment of liabilities.

Ex. 15–8 MARIAN SMITH, EXECUTOROf the Will of Howard Jones, Deceased

Charge and Discharge StatementFor Period June 18 through December 18, 2006

First, as to PrincipalI charge myself as follows:

Inventory of estate property, June 18, 2006 $150,000Property discovered 20,000Gain on disposal of principal property 1,000 $171,000

I credit myself as follows:Liabilities paid $ 40,000Devises distributed 125,000Administrative costs 6,000 171,000

Balance, Dec. 18, 2006 $ -0-

Second, as to IncomeI charge myself as follows:

Interest revenue $ 10,000Dividend revenue 15,000 $ 25,000

I credit myself as follows:Distributions of income 25,000

Balance, Dec. 18, 2006 $ -0-


Ex. 15–9 BARBARA COLEMAN, EXECUTOROf the Will of Robert Kaplan, Deceased

Charge and Discharge StatementFor Period August 10, 2005, through February 10, 2006


Inventory of estate property, Aug. 10, 2005 $117,000Property discovered 1,800Gain on disposal of principal property 1,200 $120,000

I credit myself as follows:Administrative costs $ 3,000Liabilities paid 24,500Devises distributed 66,500 94,000

Balance, Feb. 10, 2006 (principal cash) $ 26,000

Second, as to IncomeI charge myself as follows:

Interest revenue $ 3,590I credit myself as follows:

Distributions to income beneficiaries $ 2,000Expenses chargeable to income 1,100 3,100

Balance, Feb. 10, 2006 (income cash) $ 490

Ex. 15–10 Closing entry for executor of will of William Wardlow, Deceased, June 30, 2006:

Estate Principal Balance 324,484Property Discovered 36,000Interest Revenue 110Dividend Revenue 3,000

Loss on Disposal of Principal Property 274Liabilities Paid 7,844Devises Distributed 347,366Administrative Costs 5,000Distributions to Income Beneficiaries 3,110

To close estate of William Wardlow in accordance with Probate Court authorization.

Ex. 15–11 a. Journal entries for executor of will of Gina Adams, Deceased, June 30, 2006:

Devises Distributed 220,000Distributions to Income Beneficiaries 6,750

Principal Cash 115,000Income Cash 6,750Marketable Securities 105,000

To record distribution of residuary devise to trustee.

Estate Principal Balance 265,000Property Discovered 13,000Gain on Disposal of Principal Property 12,000Interest Revenue 4,000Dividend Revenue 4,500

Administrative Costs 5,400Liabilities Paid 16,000Devises Distributed 268,600Distributions to Income Beneficiaries 6,750Expenses Chargeable to Income 1,750

To close accounting records of estate.


b. Journal entry for trustee, June 30, 2006:

Principal Cash 115,000Income Cash 6,750Marketable Securities 105,000

Trust Principal Balance 220,000Trust Income Balance 6,750

To open accounting records of trust.

Ex. 15–12 Closing entry for Wilson Woodrow Trust, Apr. 30, 2006:

Trust Principal Balance 1,700Trust Income Balance 1,200Interest Revenue 1,600

Administrative Costs 1,700Distributions to Income Beneficiary 2,000Expenses Chargeable to Income 800

To close nominal accounts of trust.

CASES

Case 15–1 Carl Roberts's partners should not approve Roberts's serving as executor of the Hopps' wills and trustee of the Hopps’ trusts. If Roberts acted in those capacities, despite the propriety of his activities in those roles, he and his partners would benefit financially from the fees he generated as executor and trustee. Such a benefit would constitute a conflict of interest. The ethics codes of the IMA and AICPA specifically prohibit conflicts of interest by their members, as do many state board of accountancy rules. Perhaps Roberts might advise Albert Hopp to select a bank trust department to serve as executor and trustee, with the proviso that the department retain Roberts & Webb, LLP for tax services for the estate and trust.

Case 15–2 a. (1) Sand Company 12% bonds due June 16, 2016, at current fair value, and interest accrued to April 16, 2006, constitute principal property. Any interest earned and received after April 16, 2006, constitutes income of the estate. The amounts to be included in an inventory of estate property on the date of Mary Carr's death are as follows:

Current fair value of bonds $103,500

Accrued interest to April 16, 2006 ($100,000 x 0.12 x 4/12) 4,000

(2) Palko Corporation common stock and dividend of $1 a share declared payable to stockholders of record April 14, 2006, are principal property. Any dividends declared subsequently, and before final settlement of the estate or distribution of the stock in the residuary devise, would be income of the estate. Both the common stock of Palko and the $5,000 dividend receivable are included in the inventory of estate property, with the stock valued at the current fair value of $68,000 on April 16, 2006.

(3) Palko Corporation 8%, $100 par, cumulative preferred stock is principal property at the current fair value of $97,500 on April 16, 2006. No dividend is included as principal because it had not been declared as of the date of Carr's death. Any subsequent declarations and payments of dividends would be income of the estate until such time as the stock is distributed to the residuary devisee and the estate is closed.

b. If there were dividends in arrears on the Palko Corporation 8%, $100 par, cumulative preferred stock, the answer in a might have to be changed with respect to dividend declarations subsequent to April 16, 2006. Extraordinary dividends are handled in various ways under state laws. The general principle to be followed is that the estate principal should be maintained. When the dividends in arrears are declared and paid,


allocation between principal and income is made based on laws that apply in a specific state.

Case 15–3 The 10,000 shares of MP Company common stock transferred to the trust constitute the principal of the trust and are held for the remainderman.

The casualty insurance premiums should be divided between trust principal and trust income. The premium on insurance to cover loss of the facilities should be charged against principal because it will provide protection to the remainderman by insuring the property for losses by fire, windstorm, or other casualty. The insurance premiums that provide for continuity of income during periods when the productive property is inoperable as a result of a casualty are charged against income because these expenditures are made for the benefit of the income beneficiary.

Receipts from the insurance company following the casualty loss should be divided between trust principal and trust income. Amounts received because of the loss of the facilities should be treated as principal. Amounts received because of loss of income should be considered income.

The distribution of the common stock of Monte Oil Corporation is analogous to a cash distribution. If the dividend is declared after the trust is established, the dividend is treated as income and should be considered as having been received for the benefit of the income beneficiary. If the dividend is considered to be an extraordinarily large distribution, the question arises as to whether the dividend is in fact income. If under state law this dividend were interpreted to be an extraordinarily large one, a large portion or all of it might be treated as principal.

The stock split and the proceeds from the subsequent disposal of MP Company common stock are transactions involving the principal of the trust. A stock split does not result in the distribution of any of MP Company's assets and is not considered income to the recipient; instead, the number of shares representing a specified ownership interest is increased. The gain from the disposal of the dividend shares does not constitute income to the trust because trust assets are considered in terms of physical properties rather than in terms of economic value. Thus, the cash received from the disposal of MP Company common stock is treated as trust principal because the cash replaces the stock. The gain is recorded as part of trust principal.

Case 15–4 (l) Attributed solely to principal. This item was property of the decedent at the time of death and subsequently was converted to cash.

(2) Attribute solely to principal. The decedent was entitled to receive this dividend before death because the right to receive a dividend accrues to the stockholder on the date of record.

(3) Attributed solely to principal. Principal property was used to acquire the bonds. This transaction is an exchange of principal cash for other principal property.

(4) Attributed solely to principal. The right to receive the additional shares of common stock vested in the decedent on January l5, 2006; therefore, the stock is part of principal. Stock dividends are not a source of income, regardless of when declared or received.

(5) Allocated between principal and income. The portion of the interest due on the date of the decedent's death is charged against principal, and the portion accrued since that date is charged against income.

(6) Attributed solely to principal. Costs of decedent's last illness and funeral costs are chargeable against principal.

(7) Attributed solely to income. The dividend was declared after the decedent's death, and the date of record also was after that date. The dividend, therefore, is income of the estate.


(8) Attributed solely to beneficiaries (devisees). Revenue and expenses arising from or caused by the ownership of real property that has been devised to a specific devisee are attributed solely to that devisee.

(9) Attributed solely to beneficiaries (devisees). Same reason as in (8) above.

(10) Attributed solely to principal. Taxes on income earned by the decedent prior to the date of death are charged against principal.


20 Minutes, EasyEstate of Mildred Young Pr. 15–1

Michael Synn, Executor

Of the Will of Mildred Young, Deceased

Charge and Discharge Statement

For Period June 5 through December 31, 2006


Inventory of estate property, June 5, 2006 $ 6 0 0 0 0 0

Property discovered 1 6 8 0 0

Gains on disposal of principal property 2 2 0 0 $ 6 1 9 0 0 0

I credit myself as follows:

Liabilities paid $ 3 6 2 0 0

Administrative costs 1 0 0 0 0

Devises distributed 1 5 0 0 0 6 1 2 0 0

Balance, Dec. 31, 2006 (Exhibit 1) $ 5 5 7 8 0 0

Second, as to Income

I charge myself as follows:

Dividend revenue $ 1 4 2 0 0

Interest revenue 1 8 5 0 0 $ 3 2 7 0 0


Expenses chargeable to income $ 7 2 0

Distributions to income beneficiaries 1 8 9 8 0 1 9 7 0 0

Balance, Dec. 31, 2006 (Income cash) $ 1 3 0 0 0

Exhibit 1—Principal property, Dec. 31, 2006:

Principal cash $ 2 5 7 0 0

Investments in bonds 2 6 8 3 0 0

Investments in common stocks 2 2 4 3 0 0

Household effects 3 9 5 0 0

Total principal property, Dec. 31, 2006 $ 5 5 7 8 0 0


35 Minutes, EasyEstate of Pablo Garcia Pr. 15–2

a. Mark Castro, Executor

Of the Will of Pablo Garica, Deceased

Journal Entries for 2006

Principal Cash 4 4 4 4 0

Certificate of Deposit at Standard Savings Bank 1 0 0 0 0 0

Interest Receivable on Certificate of Deposit 1 1 0 0

Personal Effects 1 3 2 0 0

Automobile 2 8 0 0

Investment in Common Stocks 7 7 0 0 0

Estate Principal Balance 2 3 8 5 4 0

To record inventory of estate property owned by

decedent on date of death.

(1) Principal Cash 6 2 9 0

Property Discovered 6 2 9 0

To record discovery of savings account in decedent.

(2) Administrative Costs 5 2 0 0

Principal Cash 5 2 0 0

To record payment of administrative costs.

(3) Principal Cash 2 6 0 2 0


Gain on Disposal of Principal Property 6 0 2 0

To record disposal of common stock.

(4) Devises Distributed 1 6 0 0 0

Personal Effects 1 3 2 0 0

Automobile 2 8 0 0

To record distribution of devise to Manuel Montejano.

(5) Principal Cash 1 1 0 0

Income Cash 5 5 0 0

Interest Receivable on Certificate of Deposit 1 1 0 0

Interest Revenue 4 1 0 0

Dividend Revenue 1 4 0 0

To record income and receipt of interest of $1,100

accrued on date of death on certificate of deposit.

(6) Distributions to Income Beneficiaries 5 5 0 0

Income Cash 5 5 0 0

To record distribution of income to Manuel Montejano.

(7) Liabilities Paid 8 0 5 0

Principal Cash 8 0 5 0

To record payment of liabilities of decedent.

(8) Estate Taxes Paid 3 2 0 0 0


To record payment of estate taxes.

(Continued on page 434.)


Estate of Pablo Garcia (continued) Pr. 15–2

Mark Castro, Executor

Of the Will of Pablo Garcia, Deceased

Journal Entries for 2006 (concluded)

(9) Estate Principal Balance 2 3 8 5 4 0

Property Discovered 6 2 9 0

Interest Revenue 4 1 0 0

Dividend Revenue 1 4 0 0

Gain on Disposal of Principal Property 6 0 2 0


Certificate of Deposit at Standard Savings

Bank 1 0 0 0 0 0


Administrative Costs 5 2 0 0

Devises Distributed 1 6 0 0 0

Liabilities Paid 8 0 5 0

Estate Taxes Paid 3 2 0 0 0

Distributions to Income Beneficiaries 5 5 0 0

To close accounting records for estate and to transfer

property of $189,600 ($32,600 + $100,000 + $57,000

= $189,600) to Manuel Montejano Trust.

b. Mark Castro, Executor

Of the Will of Pablo Garcia, Deceased


For Period March 1 through December 10, 2006

First, as to Principal


Inventory of estate property, Mar. 1, 2006 $ 2 3 8 5 4 0

Property discovered 6 2 9 0

Gain on disposal of principal property 6 0 2 0 $ 2 5 0 8 5 0


Administrative costs $ 5 2 0 0

Devises distributed 1 6 0 0 0

Liabilities paid 8 0 5 0

Estate taxes paid 3 2 0 0 0

Transfer of property to Manuel Montejano

Trust 1 8 9 6 0 0 2 5 0 8 5 0

Balance, Dec. 10, 2006 - 0 -



Interest revenue $ 4 1 0 0

Dividend revenue 1 4 0 0 $ 5 5 0 0


Distributed to income beneficiaries 5 5 0 0

Balance, Dec. 10, 2006 $ - 0 -


Estate of Pablo Garcia (concluded) Pr. 15–2

c. Manuel Montejano Trust

Journal Entry

December 10, 2006


Certificate of Deposit at Standard Savings Bank 1 0 0 0 0 0


Trust Principal Balance 1 8 9 6 0 0

To open accounting records of Manuel Montejano

Trust.


60 Minutes, MediumEstate of Janet Mann Pr. 15–3

Dudley Mann, Executor

Of the Will of Janet Mann, Deceased


For Period May 31, 2006, through July 1, 2007


Inventory of estate property, May 31, 2006 (Exhibit 1) $ 6 5 3 3 0 0

Gain on settlement of devise (Exhibit 2) 4 0 0 $ 6 5 3 7 0 0


Liabilities paid $ 1 2 0 0 0

Additional prior years’ federal and state income taxes, plus interest 1 8 1 0

Income taxes of decedent for 2006 9 1 0 0

Estate and inheritance taxes 4 3 0 0 0

Attorney’s and accountant’s fees 2 5 0 0 0

Devises distributed (Exhibit 3) 2 6 9 9 0 0

Loss on disposal of principal property (Exhibit 4) 1 1 9 0 3 6 2 0 0 0

Balance, July 1, 2007 (Exhibit 5) $ 2 9 1 7 0 0



Income collected (Exhibit 6) $ 2 3 0 0 0

Income accrued, July 1, 2007 (Exhibit 7) 8 0 0 0 $ 3 1 0 0 0


Federal and state fiduciary income taxes $ 2 4 0 0

Distributions of income ($1,500 x 13) 1 9 5 0 0 2 1 9 0 0

Balance, July 1, 2007 (Exhibit 8) $ 9 1 0 0

Exhibit 1—Inventory of estate property, May 31, 2006:

Personal residence $ 2 4 5 0 0 0

Jewelry—diamond ring 1 4 6 0 0

City National Bank checking account 4 3 0 0 0

U.S. Treasury 12% bonds ($200,000 face amount) 2 0 0 0 0 0

Accrued interest on U.S. Treasury 12% bonds 6 0 0 0

Sonar Corporation 9% bonds ($10,000 face amount) 9 9 0 0

Permian Company common stock, 800 shares 6 4 0 0 0

Dividend receivable from Permian Company 8 0 0

Roe Company common stock, 700 shares 7 0 0 0 0

Total $ 6 5 3 3 0 0



Estate of Janet Mann (concluded) Pr. 15–3

Dudley Mann, Executor

Of the Will of Janet Mann, Deceased

Charge and Discharge Statement (concluded)

For Period May 31, 2006, through July 1, 2007

Exhibit 2—Gain on settlement of devise:Cash bequest to Dudley Mann $ 1 5 0 0 0

Less: Inventory value of diamond ring accepted in lieu of cash 1 4 6 0 0

Gain on settlement of devise $ 4 0 0

Exhibit 3—Devises distributed:

Personal residence, George Mann $ 2 4 5 0 0 0

Diamond ring in lieu of cash devise, Dudley Mann 1 5 0 0 0

Sonar Corporation 9% bonds, Eleanor Mann 9 9 0 0

Total $ 2 6 9 9 0 0

Exhibit 4—Loss on disposal of principal property:

Inventory value of Roe Company common stock $ 7 0 0 0 0

Less: Proceeds on disposal of Roe Company common stock 6 8 8 1 0

Loss on disposal of principal property $ 1 1 9 0

Exhibit 5—Estate principal balance, July 1, 2007:

Principal cash (See below*) $ 2 7 7 0 0

U.S. treasury 12% bonds 2 0 0 0 0 0

Permian Company common stock 6 4 0 0 0

Total $ 2 9 1 7 0 0

Exhibit 6—Income collected:

U.S. Treasury 12% bonds ($24,000 – $6,000) $ 1 8 0 0 0

Permian Company common stock 5 0 0 0

Total $ 2 3 0 0 0

Exhibit 7—Income accrued, July 1, 2007:

U.S. Treasury 12% bonds ($200,000 x 0.12 x 4/12) $ 8 0 0 0

Exhibit 8—Balance of income:

Income cash ($23,000 – $21,900) $ 1 1 0 0

Accrued interest on U.S. Treasury 12% bonds 8 0 0 0

Total $ 9 1 0 0

* Cash in inventory, May 31, 2006 $ 4 3 0 0 0

Add: Proceeds on disposal of Roe Company common stock 6 8 8 1 0

Accrued interest on May 31, 2006 6 0 0 0

Dividend receivable from Permian Company on May 31, 2006 8 0 0

Subtotal $ 1 1 8 6 1 0 Less: Liabilities paid $ 1 2 0 0 0

Additional prior years’ federal and state income taxes, plus interest 1 8 1 0

Income taxes of decedent for 2006 9 1 0 0

Estate and inheritance taxes 4 3 0 0 0

Attorney’s and accountant’s fees 2 5 0 0 0 9 0 9 1 0

Principal cash balance, July 1, 2007 $ 2 7 7 0 0


75 Minutes, StrongEstate of Federick Doheny Pr. 15–4

Richard Cordes, Executor

Of the Will of Frederick Doheny, Deceased


For Period February 1 through December 31, 2006


Inventory of estate property, Feb. 1, 2006 (Exhibit 1) $ 4 4 5 1 0 0

Gain on disposal of principal property (Exhibit 2) 5 0 0 0 $ 4 5 0 1 0 0


Administrative costs (Exhibit 3) $ 1 6 9 7 5

Liabilities paid (Exhibit 4) 4 4 2 5

Devises distributed (Exhibit 5) 1 9 8 7 0 0 2 2 0 1 0 0

Balance, Dec. 31, 2006 (Exhibit 6) $ 2 3 0 0 0 0



Receipt of income (Exhibit 7) $ 1 2 3 0 0


Expenses chargeable to income (Exhibit 8) $ 4 5 0 0

Distribution of income—United Charities ($12,300 – $4,500 – $500) 7 3 0 0 1 1 8 0 0

Balance, Dec. 31, 2006 (income cash) $ 5 0 0

Exhibit 1—Inventory of estate property, Feb. 1, 2006:

Union Bank checking account $ 3 3 5 0 0

Sun City bonds, $60,000 face amount, 12% interest rate 5 9 0 0 0

Ron Corp, common stock, 2,000 shares 2 2 0 0 0 0

Term life insurance policy 2 0 0 0 0

Residence ($86,500) and furniture ($23,500) 1 1 0 0 0 0

Dividends receivable on Ron Corp., common stock (declared Jan. 14,

2006) 2 0 0 0

Accrued interest on Sun City bonds ($60,000 x 0.12 x 1/12) 6 0 0

Total inventory of estate property $ 4 4 5 1 0 0

Exhibit 2—Gain on disposal principal property:

Gain on disposal of 1,000 shares of Ron Corp. common stock

($105,000 – $100,000*) $ 5 0 0 0

Exhibit 3—Administrative costs:

Attorney’s and accountant’s fees ($20,000 – $3,025) $ 1 6 9 7 5

* Current fair value of Ron Corp. common stock, Feb 1, 2006 $ 2 2 0 0 0 0

Number of shares after July 1, 2006, stock dividend 2 2 0 0

Carrying amount per share ($220,000 ÷ 2,200) $ 1 0 0

Carrying amount of 1,000 shares sold (1,000 x $100) $ 1 0 0 0 0 0



Estate of Federick Doheny (concluded) Pr. 15–4

Richard Cordes, Executor

Of the Will of Frederick Doheny, Deceased

Charge and Discharge Statement (concluded)

For Period February 1 through December 31, 2006

Exhibit 4—Liabilities paid:Funeral costs and costs of final illness $ 3 5 0 0

Balance due on 2005 income taxes 7 0 0

Part-time gardener, month of January, 2006 1 2 5

Property taxes, month of January ($1,200 x 1/12) 1 0 0

Total liabilities paid $ 4 4 2 5

Exhibit 5—Devises distributed (United Charities):

Proceeds ($59,000) and accrued interest of $600 on Sun City bonds

to Feb 1, 2006 $ 5 9 6 0 0

Proceeds on Ron Corp. common stock distributed in September 1 0 5 0 0 0

Cash paid in December 3 4 1 0 0 (1)

Total devises distributed (United Charities) $ 1 9 8 7 0 0

Exhibit 6—Estate principal balance, Dec. 31, 2006:Ron Corp. common stock, 1,200 shares $ 1 2 0 0 0 0

Residence ($86,500) and furniture ($23,500) 1 1 0 0 0 0

Estate principal balance, Dec. 31, 2006 $ 2 3 0 0 0 0

Exhibit 7—Receipt of income:

Interest on Sun City bonds ($60,000 x 0.12 x 5/12) $ 3 0 0 0

Dividends on Ron Corp. common stock, $1 a share 1 2 0 0

Rent, 9 months at $900 a month 8 1 0 0

Total income received $ 1 2 3 0 0

Exhibit 8—Expenses chargeable to income:

Attorney’s and accountant’s fees $ 3 0 2 5

Property taxes, 11 months at $100 a month 1 1 0 0

Part-time gardener, 3 months at $125 a month 3 7 5

Total expenses chargeable to income $ 4 5 0 0

(1) Cash in inventory, Feb. 1, 2006 $ 3 3 5 0 0

Add: Dividends and interest receivable on Feb. 1, 2006 2 6 0 0

Proceeds on term life insurance 2 0 0 0 0

Subtotal $ 5 6 1 0 0Less: Administrative costs (Exhibit 3) $ 1 6 9 7 5

Liabilities paid (Exhibit 4) 4 4 2 5

Accrued interest on Sun City bonds paid to United Charities 6 0 0 2 2 0 0 0

Principal cash distributed in December $ 3 4 1 0 0


chapter 15, modern advanced accounting-review q & exr

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