Counsell Is a Simple Trust That Correctly Uses the Calendar

question 40

Essay

Counsell is a simple trust that correctly uses the calendar year for tax purposes.Its income beneficiaries (Kathie,Lynn,Mark,and Norelle) are entitled to the trust's annual accounting income in shares of one-fourth each.For the current calendar year,the trust has ordinary business income of $40,000,a long-term capital gain of $20,000 (allocable to income),and a trustee commission expense of $4,000 (allocable to corpus).Use the format of Exhibit 20.5 in the text to address the following items.
a.How much income is each beneficiary entitled to receive?
b.What is the trust's DNI?
c.What is the trust's taxable income?
d.How much is taxed to each of the beneficiaries?

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Definitions:

Retained Earnings

The accumulated net income of a company that has not been distributed to shareholders as dividends.

Paid-in Capital

Funds raised by a company through the issuance of shares to shareholders, representing the funding the company has received from equity rather than from ongoing operations.

Stockholders' Equity

The ownership interest of stockholders in a company, represented by the company's assets minus liabilities.

Treasury Stock

Refers to shares that were once part of the outstanding shares and have been bought back by the issuing company, reducing the amount of stock on the open market.