Prepaid insurance is to be accrued as is interest, and charged off in the same way. Entry No. 32 shows the writing off of the proportion of a fire insurance premium unexpired at the time of the decedent's death: Expense, Income ... $....... $....... The administrator receives no commission on such items of expense deferred from before the decedent's death. § 609. Deferred Income In the same way, if any interest had been prepaid to the decedent, the unearned portion of that interest would be a liability and as such a debt of the decedent, a deduction from corpus. The entry upon the books of the estate at the expiration of the period for which the interest was prepaid would be: Debts of Decedent... Income $....... $....... The same rule would apply to other items of deferred income except, in some states, rent. (See § 608.) On such items the administrator would be entitled to no commission. § 610. Dividends Received Examples of the manner of showing dividends received appear in Entries Nos. 1 and 29. The first payment is credited to Inventory because, having been declared before the decedent's death, it is a part of the corpus and should be included in the inventory. (See §§ 308, 309.) If it had not been inventoried the credit would have had to be to Assets Not in Inventory. If the incorrect amount had been included in the inventory it would have been necessary to take up the difference through Gain on Realization or Loss on Realization. The dividend shown in Entry No. 29 is credited entirely to Income because it was declared after the demise. § 611. Loss by Bank Failure Suppose that the Montrose Trust Company, in which the decedent had a savings account of $3,000, plus $60 of interest credited on December 31, 1919, failed. The final settlement of the insolvent bank's affairs being made with a loss of $612 to the estate, the estate books must now show this loss in the following manner (Entry No. 30): The loss is proportioned between Loss on Income and Loss on Realization as indicated in connection with a loss by theft. (See § 606.) § 612. Loss by Fire All losses are subject to the same general principles. The settlement of a loss by fire is indicated in Entry No. 31, the appraised value of the property destroyed being $5,650. There was in effect a fire insurance policy for $3,000. The loss is entered at the time of the receipt of the payment from the insurance company: § 613. Assets Erroneously Included in Inventory It has been shown (see § 277) that assets which stand in the name of the decedent should be included in the inventory, leaving it to the court to pass finally upon the title thereto. Suppose that in the inventory there were included certain certificates of stock found in the decedent's desk, and assigned • For comment on administrator's liability, see § 96. in blank by him, which were claimed by another person who was able to prove that he had bought and paid for them. The court would order the administrator to turn over the certificates to the purchaser, and make on his books the following entry covering the transfer: Loss on Realization... Inventory § 614. Realization of Debts Receivable $....... $...... Collections of debts due the decedent are credited to Inventory for the amount at which they have been appraised. If a payment is received on account, Inventory will be credited with only the amount received, the balance being held in abeyance. If more than the appraised value of the debt is received, the excess will be handled through Gain on Realization: Cash (the amount received)..... Inventory (the appraised value)..... $....... $....... If less than the appraised value is received and the administrator is in doubt as to the collectibility of the balance, that part may be left in the inventory with the other assets not realized upon, the entry being Cash Inventory for the amount which is received. $...... $..... If the administrator has to compromise any account to secure settlement (making certain first that his action is tenable), the entry would be: Cash (for the amount collected)......... Loss on Realization (for the amount relin quished) ..... Inventory (for the appraised value)........... $...... ..... $....... § 615. Real Estate Passing Directly If among the estate assets there is real property which passes directly to heirs-at-law, without coming into the hands of the administrator, this real estate not having been included in the inventory, the books of account need take no note of the transaction. But if such real estate was included in the inventory, it is necessary to credit it out of the Inventory account. The entry should be: Distribution of Assets Other Than Cash....... $....... Inventory § 616. Collection of a Mortgage Note $..... If the decedent had contracted to sell certain real estate, whether title had passed to the vendee, who had given the decedent a note secured by a mortgage for the unpaid balance, or whether title still vested in the decedent at the date of his death, the heir to the real estate receives no interest whatever in the decedent's equity in this property. The asset is considered personal property. The inventory should have shown the amount of money receivable and not any equity in the real estate. The entry for the collection of a mortgage note receivable is, therefore: Cash Inventory $....... $...... § 617. Operation and Sale of a Going Business If the decedent was the individual proprietor of a going business, complications are introduced for the handling of which no uniform rule can be laid down. Of course the assets of the business must be inventoried with the general assets of the estate, but it is always wise to make of them a distinct class in the inventory. If the court instructs the administrator to continue the operation of the business and a good set of books has been kept for this enterprise, these books should be closed in the manner which has been followed in the past, bringing down the asset and liability balances, and entering the appraisal as an adjustment to net worth. At this point the administrator has a choice of two courses: he may elect to continue the keeping of the books of the business as distinct from the general estate books, or he my carry the whole through one set of books. If the business is of some magnitude and has an accounting staff which is able and used to handling the transactions which occur, the former procedure is probably the more satisfactory, as there will be innumerable details which the administrator will not want to Ideal with and indeed probably could not handle so well as could those to whom the handling of these details has become a routine matter. If the administrator follows this course he must, of course, provide a suitable check upon the work of those who handle the records. It will usually be necessary for him to tighten up on the methods generally followed in accounting for individual proprietorships. He should require that all receipts be banked, no bills being paid directly out of the receipts. If small payments are necessary they should be made from an "imprest" petty cash fund and properly vouchered. While for the books of the business any good commercial system of accounting will do, complications arise in connecting these up with the books of the estate. Perhaps the most satisfactory tie is secured by opening on the estate books an account with the business. This would be done by making the entry Business Inventory $...... $...... for the appraised value of the assets of the business. All cash withdrawn from the business would be entered: Cash Business $.. $...... |