Homework Lance
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.
Answer: D
Learning Objective: 19-01
Topic: Estate administration―General rules
Difficulty: 1 Easy
Blooms: Remember
AACSB: Reflective Thinking
AICPA: BB Legal
AICPA: FN Research
[QUESTION]
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.
Answer: E
Learning Objective: 19-01
Topic: Estate administration―General rules
Difficulty: 1 Easy
Blooms: Remember
AACSB: Reflective Thinking
AICPA: BB Legal
AICPA: FN Research
[QUESTION]
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.
Answer: A
Learning Objective: 19-01
Topic: Estate administration―Order of priority
Difficulty: 1 Easy
Blooms: Remember
AACSB: Reflective Thinking
AICPA: BB Legal
AICPA: FN Research
[QUESTION]
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.
Answer: B
Learning Objective: 19-02
Topic: Estate distribution―Abatement process
Difficulty: 1 Easy
Blooms: Remember
AACSB: Reflective Thinking
AICPA: BB Legal
AICPA: FN Research
[QUESTION]
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.
Answer: B
Learning Objective: 19-02
Topic: Estate distribution―Type of legacy
Topic: Legal terminology
Difficulty: 1 Easy
Blooms: Remember
AACSB: Reflective Thinking
AICPA: BB Legal
AICPA: FN Research
[QUESTION]
6. In a will, a devise 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.
Answer: D
Learning Objective: 19-02
Topic: Legal terminology
Difficulty: 1 Easy
Blooms: Remember
AACSB: Reflective Thinking
AICPA: BB Legal
AICPA: FN Research
[QUESTION]
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.
Answer: E
Learning Objective: 19-04
Topic: Estate income and principal
Difficulty: 1 Easy
Blooms: Remember
AACSB: Reflective Thinking
AICPA: BB Legal
AICPA: FN Measurement
[QUESTION]
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.
Answer: A
Learning Objective: 19-04
Topic: Estate income and principal
Difficulty: 2 Medium
Blooms: Understand
AACSB: Reflective Thinking
AICPA: BB Legal
AICPA: FN Measurement
[QUESTION]
9. In an executor’s accounting for an estate, debts and other obligations are recorded
A) At book value.
B) As a reduction of income.
C) On the date of payment.
D) As soon as discovered.
E) Only if they are past due.
Answer: C
Learning Objective: 19-01
Learning Objective: 19-04
Topic: Estate recordkeeping
Difficulty: 2 Medium
Blooms: Understand
AACSB: Reflective Thinking
AICPA: BB Legal
AICPA: FN Measurement
[QUESTION]
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.
Answer: E
Learning Objective: 19-06
Topic: Legal terminology
Topic: Trusts―Type of trust
Difficulty: 1 Easy
Blooms: Remember
AACSB: Reflective Thinking
AICPA: BB Legal
AICPA: FN Research
[QUESTION]
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.
Answer: C
Learning Objective: 19-06
Topic: Trusts―Income and Principal
Difficulty: 1 Easy
Blooms: Remember
AACSB: Reflective Thinking
AICPA: BB Legal
AICPA: FN Measurement
[QUESTION]
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.
C) Investment costs and commissions.
D) Insurance expense.
E) Property taxes.
Answer: C
Learning Objective: 19-06
Topic: Trusts―Income and Principal
Difficulty: 1 Easy
Blooms: Remember
AACSB: Reflective Thinking
AICPA: BB Legal
AICPA: FN Measurement
[QUESTION]
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.
Answer: D
Learning Objective: 19-06
Topic: Legal terminology
Difficulty: 1 Easy
Blooms: Remember
AACSB: Reflective Thinking
AICPA: BB Legal
AICPA: FN Research
Use the following to answer questions 14 – 19:
REFERENCE: 19-01
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 Harbor Savings Bank 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.
[QUESTION]
REFER TO: 19-01
14. The gift to David is a
A) General legacy.
B) Specific legacy.
C) Demonstrative legacy.
D) Residual legacy.
E) Devise.
Answer: A
Learning Objective: 19-02
Topic: Estate distribution―Type of legacy
Difficulty: 2 Medium
Blooms: Apply
AACSB: Knowledge Application
AICPA: BB Legal
AICPA: FN Research
[QUESTION]
REFER TO: 19-01
15. The gift to James is a
A) General legacy.
B) Specific legacy.
C) Demonstrative legacy.
D) Residual legacy.
E) Devise.
Answer: C
Learning Objective: 19-02
Topic: Estate distribution―Type of legacy
Difficulty: 2 Medium
Blooms: Apply
AACSB: Knowledge Application
AICPA: BB Legal
AICPA: FN Research
[QUESTION]
REFER TO: 19-01
16. The decedent resided in a state that does not treat a demonstrative legacy shortfall as a general legacy. How much would James have received from the estate?
A) $50,000.
B) $40,000.
C) $25,000.
D) $45,000.
E) $30,000.
Answer: B
Learning Objective: 19-02
Topic: Estate distribution―Calculate amount
Difficulty: 2 Medium
Blooms: Apply
AACSB: Knowledge Application
AICPA: BB Legal
AICPA: FN Measurement
Feedback: Balance in Harbor Savings account of $40,000 is the limit for son James to receive, since the $50,000 bequest stated specifically he was to be paid from that account only and the state does not treat the shortfall as a general legacy.
[QUESTION]
REFER TO: 19-01
17. The decedent resided in a state that does not treat a demonstrative legacy shortfall as a general legacy. How much would Lila have received from the estate?
A) $ 0.
B) $40,000.
C) $35,000.
D) $45,000.
E) $30,000.
Answer: D
Learning Objective: 19-02
Topic: Estate distribution―Calculate amount
Difficulty: 2 Medium
Blooms: Apply
AACSB: Knowledge Application
AICPA: BB Legal
AICPA: FN Measurement
Feedback: Son James is limited to $40,000 in the Harbor Savings account because the state does not treat the shortfall as a general legacy. Brother David is to receive $25,000 from any source, for a total of $65,000 of the $110,000 available after final expenses, leaving $45,000 for daughter Lila.
18. The decedent resided in a state that treats a demonstrative legacy shortfall as a general legacy. How much would James have received from the estate?
A) $50,000.
B) $40,000.
C) $25,000.
D) $45,000.
E) $30,000.
Answer: A
Learning Objective: 19-02
Topic: Estate distribution―Calculate amount
Difficulty: 3 Hard
Blooms: Apply
AACSB: Knowledge Application
AICPA: BB Legal
AICPA: FN Measurement
Feedback: Balance in Harbor Savings account of $40,000 is available for son James to receive, and since the state treats the shortfall of $10,000 as a general legacy, the remainder of the $50,000 bequest is treated as a general legacy. James thus receives $50,000.
[QUESTION]
REFER TO: 19-01
19. The decedent resided in a state that treats a demonstrative legacy shortfall as a general legacy. How much would Lila have received from the estate?
A) $ 0.
B) $40,000.
C) $35,000.
D) $45,000.
E) $30,000.
Answer: C
Learning Objective: 19-02
Topic: Estate distribution―Calculate amount
Difficulty: 3 Hard
Blooms: Apply
AACSB: Knowledge Application
AICPA: BB Legal
AICPA: FN Measurement
Feedback: Son James is will receive the $40,000 in the Harbor Savings account and the shortfall of $10,000 will be a general legacy. Thus James will receive $50,000. Brother David is to receive $25,000 from any source, for a total of $75,000 of the $110,000 available after final expenses, leaving $35,000 for daughter Lila.
Use the following to answer questions 21 and 22:
REFERENCE: 19-02
The provisions of a will currently undergoing probate are: “Two thousand shares of Dorn stock to my son; $30,000 in cash from my Atlas Savings Bank account to my brother; $50,000 in cash to my daughter; and any remaining property divided equally between my son and daughter.”
[QUESTION]
REFER TO: 19-02
20. 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.
Answer: E
Learning Objective: 19-02
Topic: Estate distribution―Calculate amount
Difficulty: 3 Hard
Blooms: Apply
AACSB: Knowledge Application
AICPA: BB Legal
AICPA: FN Measurement
Feedback: Son receives only the 1,200 remaining shares of stock even though 2,000 are referenced in the will. The $130,000 in Cash ($70,000 Cash & $60,000 Savings) – specific bequests (Brother $30,000 + Daughter $50,000) $80,000 = $50,000 residual to be equally divided, therefore the son receives $25,000 of the Cash.
[QUESTION]
REFER TO: 19-02
21. 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. The decedent resided in a state that treats a demonstrative legacy shortfall as a general legacy. .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) $56,000 cash.
Answer: E
Learning Objective: 19-02
Topic: Estate distribution―Calculate amount
Difficulty: 3 Hard
Blooms: Apply
AACSB: Knowledge Application
AICPA: BB Legal
AICPA: FN Measurement
Feedback: The brother will receive the $22,000 in the savings account and the shortfall of $8,000 will be a general legacy. Thus the brother will receive $30,000. The daughter is to receive $50,000 from any source, for a total of $80,000 of the $92,000 available ($22,000 Cash & $70,000 Savings) , leaving $12,000 to be divided equally to the son and daughter. Therefore, the daughter receives $6,000 + the $50,000 specific bequest to her = $56,000 total in Cash.
[QUESTION]
22. 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.
Answer: E
Learning Objective: 19-03
Topic: Estate and inheritance taxes
Difficulty: 1 Easy
Blooms: Remember
AACSB: Reflective Thinking
AICPA: BB Legal
AICPA: FN Measurement
[QUESTION]
23. Assume that Bob Smith dies on May 25, 2018. 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.
Answer: B
Learning Objective: 19-03
Topic: Estate and inheritance taxes
Difficulty: 3 Hard
Blooms: Apply
AACSB: Knowledge Application
AICPA: BB Legal
AICPA: FN Measurement
Feedback: ABC Stock at FV $40,000 + House at FV $620,000 + Life Insurance of $600,000 + Cash of 50,700 – Credit Card Liability of $8,530 – Funeral/Medical Expenses of $50,492 = $1,251,678 Estate Valuation
[QUESTION]
24. What is the amount of the personal exemption on an estate income tax return?
A) $ 0.
B) $100.
C) $300.
D) $500.
E) $600.
Answer: E
Learning Objective: 19-03
Topic: Estate and inheritance taxes
Difficulty: 1 Easy
Blooms: Remember
AACSB: Reflective Thinking
AICPA: BB Legal
AICPA: FN Measurement
[QUESTION]
25. 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.
Answer: D
Learning Objective: 19-04
Topic: Estate income and principal
Difficulty: 1 Easy
Blooms: Remember
AACSB: Reflective Thinking
AICPA: BB Legal
AICPA: FN Measurement
[QUESTION]
26. 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.
C) Funeral expenses.
D) Insurance expenses.
E) Debts incurred prior to death.
Answer: D
Learning Objective: 19-04
Topic: Estate income and principal
Difficulty: 1 Easy
Blooms: Remember
AACSB: Reflective Thinking
AICPA: BB Legal
AICPA: FN Measurement
[QUESTION]
27. 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.
Answer: E
Learning Objective: 19-01
Topic: Estate administration―General rules
Difficulty: 2 Medium
Blooms: Understand
AACSB: Reflective Thinking
AICPA: BB Legal
AICPA: FN Research
[QUESTION]
28. 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) Credit card debts.
A) 1 and 2.
B) 2 and 3.
C) 3 and 4.
D) 1 and 4.
E) 2 and 4.
Answer: A
Learning Objective: 19-01
Topic: Estate administration―Order of priority
Difficulty: 2 Medium
Blooms: Understand
AACSB: Reflective Thinking
AICPA: BB Legal
AICPA: FN Measurement
[QUESTION]
29. 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.
C) Demonstrative legacy.
D) Residual legacy.
E) Devise.
Answer: B
Learning Objective: 19-02
Topic: Estate distribution―Type of legacy
Difficulty: 2 Medium
Blooms: Understand
AACSB: Reflective Thinking
AICPA: BB Legal
AICPA: FN Research
[QUESTION]
30. 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.
C) Demonstrative legacy.
D) Residual legacy.
E) Devise.
Answer: C
Learning Objective: 19-02
Topic: Estate distribution―Type of legacy
Difficulty: 2 Medium
Blooms: Understand
AACSB: Reflective Thinking
AICPA: BB Legal
AICPA: FN Research
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