The Zhao Estate Generated Distributable Net Income (DNI) This Year

question 67

Multiple Choice

The Zhao Estate generated distributable net income (DNI) this year of $100,000, one-fourth of which was tax- exempt interest, and the balance of which was long-term capital gain. Kyle Zhao, the sole income beneficiary of the estate, received a distribution of the entire $125,000 accounting income of the entity. How does Kyle report the distribution?

• A) $75,000 long-term capital gain, $25,000 exempt interest.
• B) $50,000 long-term capital gain, $50,000 exempt interest.
• C) $75,000 long-term capital gain, $25,000 ordinary income.
• D) $93,750 long-term capital gain, $31,250 exempt interest.

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Definitions:

Residual Value

The estimated remaining value of an asset at the end of its useful life.

Units-of-Production Method

A depreciation method that allocates expense based on the actual usage or output of the asset, reflecting its wear and tear more accurately.

Depreciation Expense

A financial approach to distribute the expense of a physical asset throughout its operational lifespan.

Residual Value

The estimated value that an asset will have at the end of its useful life, after factoring in depreciation or amortization.