Based on the GAAP basis income statement and balance sheet and the additional information below, prepare the 2014 Partnership tax return for ABS Partnership, including the Schedule K-1’s for ABS’ two partners. Answer all questions on the tax return, using your best judgment for any missing information.

Facts

ABS LP sells building materials (business activity code 444190).

ABS is an accrual basis partnership with a calendar tax year, which has been in business since January 1, 2006.

Its EIN is 54-9874562.

ABS has two partners: Jerry Johnson and Steve Stillwell.

Jerry, who owns 60% of the partnership, is a general partner and is also the tax matters partner.

Steve, who owns 40%, is a limited partner, and does not participate in the business.

The following are ABS’ GAAP basis income statement and balance sheet:

Income Statement

Sales Revenue                                                   2,500,000

Dividend Income                                                     2,000

Gain on Sale of Stocks                                         12,000

Interest Income                                                      5,000

Tax Exempt Interest                                              2,500

    Total Income                                                 2,521,500

Bad Debt Expense                                                25,000

Charitable Contributions                                      1,000

Cost of Goods Sold                                          1,650,000

Depreciation Expense                                           7,000

Employee Benefits Expense                               20,000

Insurance Expense                                               40,000

Interest Expense                                                    3,000

Meals & Entertainment Expense                         3,000

Office Expense                                                        6,500

Professional Fees Expense                                  85,000

Rent Expense                                                         48,000

Repairs & Maintenance Expense                       15,000

Pension Expense                                                   45,000

Salaries Expense                                                  325,000

Supplies Expense                                                  18,000

Tax Expense                                                              2,000

Travel Expense                                                      23,000

Utilities Expense                                                   51,000

    Total Expenses                                             2,367,500

                                                                     

Net Income                                                           154,000

Balance Sheet                                                                        

                                                                              Beg of Year                             End of Year

Cash                                                                     10,000                                          40,000

Accounts Receivable                                            75,000                                       150,000

Allowance for Doubtful Accounts                     (10,000)                                     (35,000)

Inventory                                                               150,000                                      209,000

Other Current Assets                                          120,000                                         80,000

Buildings & Other Assets                                     450,000                                      460,000

Accumulated Depreciation                                 (325,000)                                    (340,000)

Land                                                                           50,000                                       50,000

    Total                                                                     520,000                                    614,000

                                                                     

                                                                             Beg of Year                             End of Year

Accounts Payable                                               125,000                                      145,000

Long-Term Loans                                                150,000                                      250,000

Partners' Capital                                                  245,000                                    219,000

    Total                                                                     520,000                                    614,000

Additional information

The partnership keeps its books according to the §704(b) regulations, requiring capital accounts be kept and negative capital accounts be made up and positive capital accounts be paid out.

The partners share profits and losses at the same rates as their capital ownership percentages.

The Dividend Income includes $1,500 of qualified dividends.

The stocks which were sold (Gain on Sale of Stocks) were owned for 5 years by the partnership.

The tax exempt Interest is interest earned on State Municipal bonds.

Actual write offs of Accounts Receivable are $10,000.

Charitable contributions were cash contributions to the United Way.

For services provided to the company, Jerry will receive an annual guaranteed payment of $30,000 (this is included in the salary expense amount on the GAAP income statement).

Depreciation for tax purposes is $15,000.

The long term loan is a nonrecourse loan.

All liabilities are shared according to profit and loss percentages.

The partners received distributions of $108,000 to Jerry and $72,000 to Steve.

The partners’ capital accounts at the beginning of the year were $147,000 Jerry and $98,000 Steve.

Note: You are required to prepare the Form 1065 and Schedule K-1 for each partner. You are not required to complete Forms 1125-A, Schedule B-1, Schedule D and Form 4562