A Trust Holds Assets That Will Generate Net Investment Income

question 37

Multiple Choice

A trust holds assets that will generate net investment income (NII) and trigger the additional Medicare taxes. The trustee should:

• A) Distribute all of the NII to trust beneficiaries.
• B) Retain all of the NII every tax year.
• C) Increase the turnover rate of the investments that the entity holds.
• D) Sell the NII assets and invest in high-yield bonds instead.

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Definitions:

Operating Cycle

The period it takes for a business to acquire resources, produce inventory, sell it in the market, and eventually collect cash from the sale.

Accounts Payable Period

The average amount of time it takes for a business to pay off its suppliers and creditors for purchases made on credit.

Cash Cycle

The time period between the outlay of cash for the production process and the collection of cash from customers.

Fixed Asset Requirements

The necessary investments in long-term assets like property, plant, and equipment that a business needs to carry out its operations.