to run, will return to the investor 5 per cent annually on the amount of the investment. Since $1,043.80 is the amount invested, the income at 5 per cent per annum will be $26.08 at the time of the first semiannual interest payment. The amount actually received, however, will be one-half year's interest at 6 per cent on $1,000, or $30. The difference between this amount and the $26.08 of actual earning power of the investment will constitute the amount of this period's amortization to be placed to the credit of the principal of the trust. The book value of the bond will then be reduced by this $3.92 from $1,043.80 to $1,039.88 and the one-half of 5 per cent for the next 6 months calculated on the basis of an investment of $1,039.88. Thus, the life tenant receives more during the first years, The following table will show how the premium on this bond is amortized over the life of the bond by the annuity method: Baugh and Schmeisser, Theory and Practice of Estate Accounting. § 672. Entries of Amortization When premium on a bond is being amortized, the book entry of each receipt of bond interest will be: Cash (the amount received).... Income (the amount of income to be al- Principal (the amount of amortization).. $....... $...... The credit to Income will be the amount placed in the Income to Tenant column of a table worked out by either of the two above methods. The credit to Principal will be the amount placed in the Amortization of Principal column. When bond discount is to be amortized, as when government bonds, yielding a low rate, are bought below par, the average return being raised on account of the low cost, the entry at the time interest is received is: Cash (the amount received).... Principal (the amount of amortization).. Income (the amount of income to be al- $....... $...... REVIEW QUESTIONS 1. Why should a trustee's accounts be simple? 2. What four accounts must a trustee keep? What is the relation between the accounts for the entire estate and the accounts for the individual trusts? 3. What are a trustee's opening entries? 4. Explain posting to the trust ledger. Should the explanation of each entry be copied? 5. What is the entry for investment of cash? 6. How are sales of assets entered to show loss or gain? 7. What are the entries for receipts and disbursements of income? What is the entry when income is turned into principal? 8. How are any advances treated which were made before the trustee entered on his position? 9. When should savings accounts be opened? 10. What entries are made when a trust fund passes by will? II. If a trust fund reverts to the estate, what entries are made? 12. What is the object of amortizing any premium paid on bonds? How is it effected? 13. How is the principle of amortization applied in New York? What is the rule in your own state? 14. Explain the straight-line method of handling amortization. 15. Explain the annuity method of computing amortization. 16. What entries are made to show the process of amortization? What entries are made to show the amortization of a discount? CHAPTER LXXIV TRUSTEES' REPORTS § 673. General Form The periodical reports made by trustees to the court are in two parts, the first of which has to do with the principal and the second with the income. These are preceded by a summary of the condition of the estate as a whole. The supporting schedules which make up the larger part of the report analyze this summary in its relation to the principal and income of each individual trust. At either the beginning or the end of the report should appear the certificate of the trustee as to the correctness of the report. The practice in the various states differs as to the form of this certificate, and at least the first one submitted by the trustee should be prepared with the assistance of his attorney. The form to be followed in the schedules is specifically provided for in a few states, but the statutes of all mention the things to be shown. It should always be remembered that the court will have the report audited, and that expense to the estate will be saved if the schedules are clear and if they reconcile properly among themselves and with the books. In the following sections there are presented the principles generally followed and specimen schedules that will be found suitable in most states. § 674. Valuations Used All assets of the estate must be carried in the reports at their book values. These are, in the case of assets which were included in the original inventory of the estate, the valuations at which they were appraised for that inventory, and in the case of assets purchased since the preparation of that inventory, the cost to the estate. For the information of the court, many states require that the report of the trustee give also the market value or "bid" price on the day as of which the report is prepared. This means the day on which the trustee has closed his books, the last day whose transactions are included in the report. As it will probably take the trustee some time to prepare his report, it will usually not be actually filed until later. Under no conditions, however, should the books be changed to agree with the market value at any time during the trusteeship. If the asset becomes absolutely worthless it may, if desired, be written off by the entry Principal Investments $...... $...... but if this is done the asset must continue to be carried in the reports and accounted for as of no value. § 675. Closing the Books It is unnecessary for the trustee who uses the simple system outlined in the two previous chapters to close his books at the time of making a report. If he uses a more complicated system which analyzes the various sources of income with separate accounts for interest, dividends, etc., and the various kinds of expenses, with separate accounts for taxes, insurance, repairs, etc., it will be necessary for him to close these accounts into Income in the way in which the nominal accounts are ordinarily closed into Profit and Loss in double-entry commercial bookkeeping. When the trusteeship is finally wound up, all the assets be |