Question

The Johnson Trust has the following items for year 6. Fees are allocated equally between income and principal. Taxable Interest $5,000, Dividends $7,000, Capital Gains $10,000, Trustee Fees $1,000, Tax Preparation Fees $500. What is the accounting income for the Johnson Trust in year 6?

Answer 1

The accounting income for the Johnson Trust in year 6 is calculated by adding the taxable interest ($5,000) and dividends ($7,000) to get a total income of $12,000,

then subtracting half of the combined trustee and tax preparation fees ($750) to arrive at an accounting income of $11,250.

Step-by-step explanation:

The accounting income for the Johnson Trust in year 6 can be calculated by adding the taxable interest and dividends and then subtracting any fees that are allocated to income.

As both trustee fees and tax preparation fees are allocated equally between income and principal, only half of those fees should be subtracted from the income sources.

First, we calculate the total income which is the sum of taxable interest and dividends:

Taxable Interest: $5,000
Dividends: $7,000
Total Income: $5,000 + $7,000 = $12,000

Next, calculate half of the total fees as they are split between income and principal:

Trustee Fees: $1,000
Tax Preparation Fees: $500
Total Fees: $1,000 + $500 = $1,500
Half of Total Fees (allocated to income): $1,500 / 2 = $750

Finally, we subtract the fees allocated to income from the total income to find the accounting income:

Accounting Income: $12,000 - $750 = $11,250

Therefore, the accounting income for the Johnson Trust in year 6 is $11,250.