# The Kilp Sisters Trust is required to distribute \$60,000 annually equally to its two income beneficiaries, Clare and Renee. If trust income is not sufficient to pay these amounts, the trustee can invade corpus to the extent necessary. During the current year, the trust generates only taxable interest income and records DNI of \$160,000; the trustee distributes \$30,000 to Clare and \$150,000 to Renee. a. How much of the \$150,000 distributed to Renee is included in her gross income? \$. b. How much of the \$30,000 distributed to Clare is included in her gross income? \$ is included in her gross income. c. The distributions which are composed of trust accounting income that is required to be distributed currently come under .

a)

Results for Renee are as follows:

After the first tier distributions (\$60000/2 = \$30000 to each income beneficiaries) are accounted for, \$100000 DNI remains to be assigned to the beneficiaries on the second tier (\$160000 DNI - \$60000 DNI used for first tier distribution).

portfolio income

First tier             \$30,000.00                       \$30,000.00

Second tier     \$1,20,000.00                        \$ 1,00,000.00

Total            \$1,50,000.00                           \$ 1,30,000.00

b)

Results for Clare are as follows:

portfolio income

First tier                \$30,000.00                         \$ 30,000.00

Second tier            \$ -                                              \$ -

Total                 \$30,000.00                           \$ 30,000.00

c)

The distributions which are composed of trust accounting income that is required to be distributed currently come under First Tier Distribution.

## Related Questions

Your company expects to receive CAD 1,200,000 in 90 days. The 90 day forward rate for CAD is \$0.80 and the current spot rate is \$0.75. If you use a forward hedge, estimate the cost of hedging the receivable if, 90 days later, the spot rate for CAD 90 days later turns out to be \$0.82.a. \$50,000
b. \$50,000
c. \$75,000
d. \$75,000

Cost of hedging = \$24,000

Explanation:

cost of hedging = 1,200,000 * (\$0.80 - \$0.82) = 1,200,000 * \$0.02 = -\$24,000

Since the actual forward rate was higher than th eexpected forward rte, the coampny lost money by hedging the operation. The cost of hedging the operation was \$24,000.

If a war destroys a large portion of a country's capital stock but the saving rate is unchanged, the Solow model predicts output will grow and that the new steady state will approach: A. a higher output level than before. B. the same output level as before. C. a lower output level than before. D. the Golden Rule output level.

B. The same output level as before.

Explanation:

If there is a war broke out in a country and because of the war a large potion of the country's capital stock is destroyed but the thing that is unchanged is saving rate.

So according to the solow model the output will grow and the steady state that is new will be the same level of output as before.

The Orange Lily Law Firm prepays for advertising in the local newspaper. On January 1, Orange Lily paid \$3,600 for six months of advertising. How much advertising expense should Orange Lily Law Firm record for the two months ending February 28 under the a. cash basis? b. accrual basis?

a. Cash basis - amount is \$3,600

b. Accrual basis - amount is \$1,200

Explanation:

a.

Under the cash basis, the amount which will be recorded is as:

In cash basis, it is the method or way of recording the accounting transactions for the revenue and the expenses only when the cash (corresponding) is received or when the payments are made.

So, in this \$3,600 is paid, the full amount will be recorded.

b.

Under Accrual basis, the amount which will be recorded as:

In Accrual basis, it is the method or way of recording the accounting transactions for the revenue when it is earned and the expenses is recorded when it is incurred.

So, in this the expense to be recorded for 2 months, it is computed as:

For per month = \$3,600 / 6

= \$600 per month

For 2 months, it is:

= \$600 × 2

= \$1,200

Therefore, the amount is \$1,200 for 2 months.

The end of the year is approaching, and Maxine has begun to focus on ways of minimizing her income tax liability. Several years ago she purchased an investment in Teal Limited Partnership, which is subject to the at-risk and the passive activity loss rules. (Last year Maxine sold a different investment that was subject to these rules and that produced passive activity income.) She believes that her investment in Teal has good long-term economic prospects. However, it has been generating tax losses for several years in a row. In fact, when she was discussing last year's income tax return with her tax accountant, he said that unless "things change" with respect to her investments, she would not be able to deduct losses this year.a. What was the accountant referring to in his comment?
b. You learn that Maxine’s current at-risk basis in her investment is \$1,000 and that her share of the current loss is expected to be \$13,000. Based on these facts, how will her loss be treated?
c. After reviewing her situation, Maxine’s financial adviser suggests that she invest at least an additional \$12,000 in Teal to ensure a full loss deduction in the current year. How do you react to his suggestion?
d. What would you suggest Maxine consider as she attempts to maximize her current year deductible loss?

Explanation:

a) What was the accountant referring to in his comment?

The accountant was referring to the fact that because passive activity losses can only offset passive activity income, she will not be able to deduct the losses in this year. However, she would be able to carry forward the loss to future years to offset any passive activity income generated in those years.

b) You learn that Maxine's current at-risk basis in her investment is \$1,000 and that her share of the current loss is expected to be \$13,000. Based on these facts, how will her loss be treated?

Based upon the fact that her basis in her investment is only \$1000, her losses will be of that amount because of the at-risk limitation, which limits the taxpayer’s deduction by the amount “at risk”. If there is no passive activity income, this would be carried forward to when Maxine would dispose of her entire interest.

c) After reviewing her situation, Maxine's financial adviser suggests that she invest at least an additional \$12,000 in Teal to ensure a full loss deduction in the current year. How do you react to his suggestion?

I believe that her financial adviser’s advice to Maxine is a good idea because if her current lossis expected to be \$13,000, by contributing \$12,000 in Teal, she would be able to deduct the full basis of \$13,000 invested into the company. If there is no passive activity income, this would be carried forward to when Maxine would dispose of her entire interest in Teal.

d) What would you suggest Maxine consider as she attempts to maximize her current year deductible loss? She should consider the advice given to her by her accountant.

20. WACC and NPV [LO3, 5] Sommer, Inc., is considering a project that will result in initial aftertax cash savings of \$2.3 million at the end of the first year, and these
savings will grow at a rate of 2 percent per year indefinitely. The firm has a target
4.6 percent. The cost-saving proposal is somewhat riskier than the usual project the
firm undertakes; management uses the subjective approach and applies an adjustment factor of +3 percent to the cost of capital for such risky projects. Under what
circumstances should the company take on the project?

Sommer Inc is considering the new project, and yet we have to calculate under what circumstances the company have to take on the project. In order to assess the project, we need to compute the break-even cost such as the present value of future cash flows and calculate the WACC weighted cost of capital. It measures the weighted cost of equity and the after tax cost of debt. The following information are given: Debt to equity ratio = 0.90 Cost of equity = 13% After-tax cost of debt = 4.8% After-tax cost of savings = \$2.7 million Debt to equity ratio = Debt / Equity = 0.90 Therefore, Value of firm = value of debt + value of equity Value of firm = 0.90E + E Value of firm

See the calculation of WACC as attachment

A company reports the following:Sales \$1,500,000
Average accounts receivable (net) 100,000
Determine (a) the accounts receivable turnover and (b) the number of days' sales in receivables. Round interim calculations to the nearest dollar and final answers to one decimal place. Assume a 365-day year.
a. Accounts receivable turnover.
b. Number of days' sales in receivables. _______ days

a. 15 times

b. 24.3 days

Explanation:

The computations are shown below:

a. Account receivable turnover ratio = Net credit sales ÷ Average accounts receivable

= \$1,500,000 ÷ \$100,000

= 15 times

Now the Number of days' sales in receivables would be

= Total number of days in a year ÷ Accounts receivable turnover ratio

= 365 days ÷ 15 times

= 24.3 days