Adam, Barbara, and Charlotte formed the equal ABC Partnership; Adam and Barbara each contributed cash of $100,000, and Charlotte contributed land worth $130,000 with a basis of $120,000 and subject to a mortgage of $30,000. In the first year (using the cash basis for tax purposes) they had the following for tax purposes:

Depreciation for book purposes was $20,000, and they had a bad debt accrued expense of $4,000 for book purposes, but no actual charge-offs during the year. Interest income comes from earnings on the cash balance.

a. What is ABC’s ordinary business income (for tax purposes — p. 1, line 22, Form 1065) for the year?

b. What are its separately stated items (those that go on Sch. K)?

c. Compute total tax net income, including separately stated items, and reconcile it with book net income (the M-1 reconciliation would be the reverse).

d. What are its beginning and ending balance sheets for book purposes (as would go on Sch. L, Form 1065)?

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Sales Purchases of inventory Ending inventory Depreciation Section 179 expense Salaries Guaranteed payment to Adam Purchases of equipment Rent expense Interest income Mortgage interest expense Ending accounts receivable $400,000 180,000 40,000 30,000 25,000 40,000 15,000 150,000 20,000 6.000 1,500 35,000