1. A schedule showing tax depreciation and book depreciation for the year. At the completion of the schedule, arrive at a book/tax difference.

   The tax entries for operations are as follows:
   Event		Dr		Cr
   Revenue
   Deductions
   (Other than
   Depreciation)
   Nondeductible
   Cash Expenses
   Loan Payments

|ACC 611 - Partnership Case Study 1.0 Formation of the partnership Alan Laren and Bonnie Srebber have agreed to form a cash-basis general partnership, Slumland Partners, to own and operate apartment complexes in College Town, USA. As of January 1 of the current year, the partnership takes legal title to the contributed property and commences operations. At the time of formation, Alan contributed $280,000 cash and an apartment complex, Party Planet Apartments, valued at $2 million. Alan purchased the complex on April 12, three years ago for $1.6 million dollars and has been operating the property as a sole proprietorship. The property is subject to a recourse debt of $700,000 that is assumed by the partnership. Bonnie contributed $780,000 cash and an apartment complex, Dumpster View Apartments, valued at $2.9 million and investment land valued at $300,000. Bonnie purchased the complex on November 7, two years ago for $2.5 million and has been operating the property as a sole proprietorship. The complex is subject to a nonrecourse debt of $2.4 million. The land was purchased on August 28, four years ago for $280,000. In November and December of the prior year, Alan and Bonnie paid $25,000 for expenses that qualify as organizational costs. During this time, they also paid $15,000 for costs that meet the definition of start-up expenses. The $40,000 expense was paid for evenly by the two partners. Immediately after formation, Alan and Bonnie agreed to admit Chuck Webes to the partnership. In return for agreeing to manage the daily operations of the partnership, Chuck received a 10% interest in capital and profits. His interest in the partnership vests immediately. 2.0 Operations and other activity during the current year The partnership agreement states that Alan and Bonnie are to each receive cash draws of $7,000 per month beginning on January 31, of the current year. Any amounts by which the draws exceed his or her allocation of income for the year must be repaid to the partnership. Furthermore, Chuck is to receive a salary, in his capacity as a partner, of $50,000 payable regardless of the profitability of the partnership. In addition to the results of operations, Slumland Partners incurred the following transactions: January 2 Partnership invested $200,000 in municipal bonds returning 4.5% interest and $250,000 in a money market account returning 2% interest (compute the interest using simple interest). The interest eamed in these accounts was transferred to the checking account. As a result, the investment balances remained unchanged at year end. January 2 Office space used as the headquarters for operations was rented. Rent for the first year of operations was $26,000. Office furniture was purchased for $20,000 and computers were purchased for $4000. The partnership elected to expense the cost of these items using $179. February 10 The partnership purchased an apartment complex, Grease Trap Apartments, for $1 million by paying $200,000 cash and financing the remainder with a recourse loan. The partnership agreement was amended at this time to indicate that 20% of the depreciation is to be specially allocated to Bonnie with the remaining 80% of the depreciation to be shared amongst the partners according to their loss sharing percentages. November 17 The partnership distributed the land held for investment to Alan. At the time of the distribution, the land was valued at $316,000. The partnership agreement does not call for optional revaluations. The partners treated the transaction as a current distribution For the current year, the table below presents the revenue and expenses reported by the partnership from their rental operations. 10,000 Total Party Dumpster Grease planet view trap Rental receipts $1,500,000 $525,000 $750,000 $225,000 Office rent 26,000 9100 13,000 3900 Utilities 138,000 36,000 82,000 20,000 Supplies 12,000 4200 6000 1800 Property taxes 80,000 27,120 39,325 13,555 Maintenance and cleaning 64,000 18,000 32,000 14,000 Repairs 96,000 51,000 30,000 15,000 Interest on loans 230,000 80,000 116,000 34,000 Advertising 14,000 4900 7000 2100 Charitable contributions 3500 5000 1500 Political contributions 5000 1750 2500 750 Meals and entertainment 6000 2100 3000 900 Legal fees 50,000 14,000 20,000 16,000 Accounting fees 40,000 14,000 20,000 6,000 Auto expenses 3000 1050 1500 450 Insurance on properties 50,000 15,000 27,000 8000 Wages to employees does not include 105,000 36,750 52,500 15,750 payments to Chuck) Health insurance for employees 15,000 5250 7500 2250 Also, $25,000 of principal was paid on the loan on Party Planet Apartments, and $15,000 of principal was paid on the loan on Grease Trap Acres. The same results are expected for the next year. The loan on Dumpster View Apartments is interest only with a balloon payment due in 7 years. 2 |ACC 611 - Partnership Case Study 1.0 Formation of the partnership Alan Laren and Bonnie Srebber have agreed to form a cash-basis general partnership, Slumland Partners, to own and operate apartment complexes in College Town, USA. As of January 1 of the current year, the partnership takes legal title to the contributed property and commences operations. At the time of formation, Alan contributed $280,000 cash and an apartment complex, Party Planet Apartments, valued at $2 million. Alan purchased the complex on April 12, three years ago for $1.6 million dollars and has been operating the property as a sole proprietorship. The property is subject to a recourse debt of $700,000 that is assumed by the partnership. Bonnie contributed $780,000 cash and an apartment complex, Dumpster View Apartments, valued at $2.9 million and investment land valued at $300,000. Bonnie purchased the complex on November 7, two years ago for $2.5 million and has been operating the property as a sole proprietorship. The complex is subject to a nonrecourse debt of $2.4 million. The land was purchased on August 28, four years ago for $280,000. In November and December of the prior year, Alan and Bonnie paid $25,000 for expenses that qualify as organizational costs. During this time, they also paid $15,000 for costs that meet the definition of start-up expenses. The $40,000 expense was paid for evenly by the two partners. Immediately after formation, Alan and Bonnie agreed to admit Chuck Webes to the partnership. In return for agreeing to manage the daily operations of the partnership, Chuck received a 10% interest in capital and profits. His interest in the partnership vests immediately. 2.0 Operations and other activity during the current year The partnership agreement states that Alan and Bonnie are to each receive cash draws of $7,000 per month beginning on January 31, of the current year. Any amounts by which the draws exceed his or her allocation of income for the year must be repaid to the partnership. Furthermore, Chuck is to receive a salary, in his capacity as a partner, of $50,000 payable regardless of the profitability of the partnership. In addition to the results of operations, Slumland Partners incurred the following transactions: January 2 Partnership invested $200,000 in municipal bonds returning 4.5% interest and $250,000 in a money market account returning 2% interest (compute the interest using simple interest). The interest eamed in these accounts was transferred to the checking account. As a result, the investment balances remained unchanged at year end. January 2 Office space used as the headquarters for operations was rented. Rent for the first year of operations was $26,000. Office furniture was purchased for $20,000 and computers were purchased for $4000. The partnership elected to expense the cost of these items using $179. February 10 The partnership purchased an apartment complex, Grease Trap Apartments, for $1 million by paying $200,000 cash and financing the remainder with a recourse loan. The partnership agreement was amended at this time to indicate that 20% of the depreciation is to be specially allocated to Bonnie with the remaining 80% of the depreciation to be shared amongst the partners according to their loss sharing percentages. November 17 The partnership distributed the land held for investment to Alan. At the time of the distribution, the land was valued at $316,000. The partnership agreement does not call for optional revaluations. The partners treated the transaction as a current distribution For the current year, the table below presents the revenue and expenses reported by the partnership from their rental operations. 10,000 Total Party Dumpster Grease planet view trap Rental receipts $1,500,000 $525,000 $750,000 $225,000 Office rent 26,000 9100 13,000 3900 Utilities 138,000 36,000 82,000 20,000 Supplies 12,000 4200 6000 1800 Property taxes 80,000 27,120 39,325 13,555 Maintenance and cleaning 64,000 18,000 32,000 14,000 Repairs 96,000 51,000 30,000 15,000 Interest on loans 230,000 80,000 116,000 34,000 Advertising 14,000 4900 7000 2100 Charitable contributions 3500 5000 1500 Political contributions 5000 1750 2500 750 Meals and entertainment 6000 2100 3000 900 Legal fees 50,000 14,000 20,000 16,000 Accounting fees 40,000 14,000 20,000 6,000 Auto expenses 3000 1050 1500 450 Insurance on properties 50,000 15,000 27,000 8000 Wages to employees does not include 105,000 36,750 52,500 15,750 payments to Chuck) Health insurance for employees 15,000 5250 7500 2250 Also, $25,000 of principal was paid on the loan on Party Planet Apartments, and $15,000 of principal was paid on the loan on Grease Trap Acres. The same results are expected for the next year. The loan on Dumpster View Apartments is interest only with a balloon payment due in 7 years. 2