Question

An inter vivos trust was created by Isaac Posney. Isaac owned a large department store in...

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:

Cash inflow:

Rental income

$78,000

Cash outflows:

Insurance

$ 5,200

Property taxes

7,800

Paving (considered an extraordinary repair)

5,600

Maintenance

10,400

Distribution to income beneficiary

39,000

Instructions

Prepare all required journal entries on the Trust Fund table for this trust fund including the entry to create the trust.

Land

     Trust – Principal

Cash – Income

     Trust – Income

Insurance Expense – Income

     Cash – Income

Property Taxes Expense – Income

     Cash – Income

Land Improvements

     Cash – Income

Due from Trust – Principal

     Due to Trust – Income

Maintenance Expense – Income

          Cash – Income

Equity in Income: Beneficiary

     Cash – Income

Homework Answers

Answer #1

Answer :)

Land $416000
     Trust – Principal $416000
Cash – Income $78000
     Trust – Income $78000
Insurance Expense – Income $5200
     Cash – Income $5200
Property Taxes Expense – Income $7800
     Cash – Income $7800
Land Improvements $5600
     Cash – Income $5600
Due from Trust – Principal $5600
     Due to Trust – Income $5600
Maintenance Expense – Income $10400
          Cash – Income $10400
Equity in Income: Beneficiary $39000
     Cash – Income $39000
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