Leonard Established a Trust for the Benefit of His Son

question 23

Essay

Leonard established a trust for the benefit of his son.The principal amount of the trust is $400,000.The trust is projected to earn approximately 5% per year.In the current year,the trust earned $20,000.Expenses of $4,000 were incurred.Assume that $14,000 is distributed to Leonard's son.
a.How much income is taxed to the trust?
b.How much income is taxed to Leonard's son?

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Definitions:

Total Cost

The sum of all expenses, both fixed and variable, involved in producing a good or providing a service.

Fixed Cost

Costs that do not change in total regardless of the level of output or activity in the short term.

Average Fixed Cost

The fixed costs of production (costs that do not change with the level of output) divided by the quantity of output produced.

Variable Cost

Costs that change in proportion to the level of activity or volume of production in a business.