Five Years Ago, Jon Transferred Stock to an Irrevocable Trust

question 78

Multiple Choice

Five years ago, Jon transferred stock to an irrevocable trust with First Bank named as trustee, and provided that the trustee is to pay some or all of the trust income to the beneficiary Dan for 15 years. At the end of the 15th year, the trust property, including any undistributed income, will revert to Jon. In the current year, the trust collected $52,000 of dividend income, and distributed $30,000 of this amount to Dan. In addition, the trust sold some of the stock at a $6,000 capital gain. For the current year, the tax results occurred?

• A)Dan is taxed on $30,000 of dividends and the trust on the remaining dividends, plus the capital gain, less the $100 personal exemption.
• B)The trust is taxed on the $52,000 of dividends less the $100 personal exemption, and Jon is taxed on the capital gain.
• C)Dan is taxed on $30,000 of dividends, and the remaining dividends plus the capital gain are taxed to Jon.
• D)Jon is taxed on all of the dividends and on the capital gain.

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Definitions:

Pro Forma Statement

Financial statements prepared under hypothetical scenarios or assumptions to forecast future financial performance.

Fixed Assets

are long-term tangible assets used in the operation of a business, such as buildings, machinery, and equipment, not expected to be converted into cash within a year.

Capacity

The maximum amount that something can contain or produce, often used in the context of production and manufacturing.

Projected Addition

An estimate of future additions or expansions in a company's operations, assets, or capacities based on planned projects or investments.