Adam, Barbara and Charlotte formed the equal ABC partnership; Adam and Barabara 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:

Sales 400,000

Purchase of inventory 180,000

Ending inventory 40,000

Depreciation 30,000

Section 179 expense 25,000

Salaries 40,000

Guaranteed payment to Adam 15,000

Purchases of equipment 150,000

Rent expense 20,000

Interest income 5,000

Mortgage interest expense 1,500

Dividends 1,000

Ending accounts receivable 35,000

Depreciation for book purposes was $20,000, and they had a bad debt accrued expense of $4000 for book purposes, but no actual

charge-offs during the year.

a) What is ABC 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 Schedule L, Form 1065)?