Reference no: EM132741733

Question - In January 2019, City Hope was contacted by the attorney representing the estate of Carl Jones. The attorney notified City Hope that Mr. Jones had passed away and his will had named City Hope as the charitable remainder beneficiary of $100,000 trust that was established at State Bank (who was to act as the trustee). The terms of the trust agreement required State Bank, as trustee, to invest the trust assets and pay $5,000 at the end of each year to Mr. Jones's wife as annuitant (the income beneficiary specified in the trust) for the remainder of her life. Upon the death of the annuitant, City Hope is to receive the remainder of the trust's assets which can be used for any purpose consistent with its mission. In follow-up conversations with the Bank and the attorney, City Hope learned the trust's assets were expected to earn a 4% return over the life of the trust and given the wife's age the trust was expected to terminate in fourteen (14) years. City Hope believes the 4% is an appropriate discounting rate.

Required -

1. Prepare the journal entry to recognize the contribution embodied in the trust agreement, assuming the trust was established is established on January 1, 2019.

2. State Bank reported the December 31, 2019 trust balance was $106,000 prior to any distributions. The fund manager reported the 2019 return had been an unexpectedly high due to a favorable market but continued to believe the long-term return of 4% was reasonable. Prepare the City Hope journal entry as of December 31, 2019, adjust for the trust and any related income.