The Willis Trust Instrument Provides That Tamara, the Sole Income

question 93

Multiple Choice

The Willis Trust instrument provides that Tamara, the sole income beneficiary, is to receive $40,000 annually. If trust accounting income is not sufficient to pay this amount, the Willis trustee is empowered to invade corpus to the extent necessary. During the current year, the trust reports distributable net income (DNI) of $100,000, including $30,000 of net tax-exempt interest. In accordance with the trust instrument, $40,000 is paid to Tamara. What is Tamara's gross income from the Willis Trust for the current year?

• A) $100,000
• B) $70,000
• C) $40,000
• D) $28,000

Understand the basic concepts of debits and credits in accounting transactions.

Identify the characteristics and normal balances of different types of accounts (assets, liabilities, equity, revenue, expenses).

Recognize the impact of transactions on stockholders' equity.

Comprehend the function and notation of journalizing and posting in the accounting process.

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Definitions:

Debt/Equity Ratio

A ratio demonstrating the comparative levels of shareholders' equity and borrowed funds deployed to finance company assets.

Residual Dividend Policy

A strategy where dividends paid to shareholders are based on earnings left over after all operational and project expenses are covered.

After-Tax Earnings

The amount of net income remaining after all taxes have been deducted, reflecting the company's profitability after fulfilling tax obligations.

Stock Split

A corporate action that increases the number of shares outstanding, reducing the price per share without changing the company's market capitalization.