Chapter 9 Taxation of Partnerships and Partners Tral Balance 12/31/2020 9-60 Balance Sheet 12/31/2019 Debit Credit Credit Debit $ 12,000 14,000 150.000 $ 22,000 14.000 190,000 S 38,000 58,000 36,000 28,000 5 63,500 87,200 30,000 28,000 Cash Investments (1) Equipment (2,3) Accumulated depreciation Recourse notes payable 4 Nonrecourse notes payable Phil. capital..... Phil, drawing (5) Kate, capital Kate, drawing 65). 25,440 16.000 16,000 16,960 235 000 1,000 Revenues...... Dividend income (1) Interest income (1) Section 1245 gain (depreciation recapture) (2) Compensation (6) Rent expense... Interest expense Tax expense property and payroll Repair expense MACRS depreciation Health insurance expense (7) Property insurance expense Office supplies expense Utility expense. Charitable contribution Total ..... 400 3,500 110,000 12,000 16,600 13,800 5,800 29,200 1,600 1,500 3.000 2,200 500 $176,000 $176,000 $464.600 $464,600 1. The investment account consists of marketable securities of U.S. corpora- tions and U.S. Treasury Bonds. All of the dividends are considered quali- fied dividends. 2. Equipment was sold May 12, 2020. for $9.800. It was purchased new on May I of the prior year for $10,000 and its basis when sold was $6,300. 3. New equipment was purchased March 1, 2020, with $5,000 cash and a $35,000 three-year recourse note payable. The first note payment is March 1, 2021. (Note: The correct amount of tax depreciation is included in the depreciation expense account in the trial balance.) 4. Notes payable are long-term except for $20,000 of the recourse notes to be paid next year. All liabilities were created by the partnership. 5. The partners' drawing accounts record cash distributions made to the partners throughout the year. 6. Compensation is composed of guaranteed payments of $30,000 each to Phil and to Kate and $50,000 to unrelated employees. 7. Health insurance premiums paid were for the unrelated employees. Prepare a 2020 (or 2019 if the 2020 tax forms are not yet available) Form 1063 Schedule K, Schedules L and M (even though not required by the IRS instructions to Form 1065), and Schedule K-1 for Phil. Complete all pages, including response a to all questions. If any necessary information is missing in the problem, assume a logical answer and record it. Do not prepare Schedule K-1 or other required supple- mental forms for Kate at this time. Use the Worksheet for Figuring Net Earnings (Loss) from Self-Employment included in the Form 1065 instructions to calculate the partners' self-employment income. Note that if you are preparing a 2019 Form 1065 you will need to adjust all indicated years in this problem to fit the 2019 tax year. Chapter 9 Taxation of Partnerships and Partners Tral Balance 12/31/2020 9-60 Balance Sheet 12/31/2019 Debit Credit Credit Debit $ 12,000 14,000 150.000 $ 22,000 14.000 190,000 S 38,000 58,000 36,000 28,000 5 63,500 87,200 30,000 28,000 Cash Investments (1) Equipment (2,3) Accumulated depreciation Recourse notes payable 4 Nonrecourse notes payable Phil. capital..... Phil, drawing (5) Kate, capital Kate, drawing 65). 25,440 16.000 16,000 16,960 235 000 1,000 Revenues...... Dividend income (1) Interest income (1) Section 1245 gain (depreciation recapture) (2) Compensation (6) Rent expense... Interest expense Tax expense property and payroll Repair expense MACRS depreciation Health insurance expense (7) Property insurance expense Office supplies expense Utility expense. Charitable contribution Total ..... 400 3,500 110,000 12,000 16,600 13,800 5,800 29,200 1,600 1,500 3.000 2,200 500 $176,000 $176,000 $464.600 $464,600 1. The investment account consists of marketable securities of U.S. corpora- tions and U.S. Treasury Bonds. All of the dividends are considered quali- fied dividends. 2. Equipment was sold May 12, 2020. for $9.800. It was purchased new on May I of the prior year for $10,000 and its basis when sold was $6,300. 3. New equipment was purchased March 1, 2020, with $5,000 cash and a $35,000 three-year recourse note payable. The first note payment is March 1, 2021. (Note: The correct amount of tax depreciation is included in the depreciation expense account in the trial balance.) 4. Notes payable are long-term except for $20,000 of the recourse notes to be paid next year. All liabilities were created by the partnership. 5. The partners' drawing accounts record cash distributions made to the partners throughout the year. 6. Compensation is composed of guaranteed payments of $30,000 each to Phil and to Kate and $50,000 to unrelated employees. 7. Health insurance premiums paid were for the unrelated employees. Prepare a 2020 (or 2019 if the 2020 tax forms are not yet available) Form 1063 Schedule K, Schedules L and M (even though not required by the IRS instructions to Form 1065), and Schedule K-1 for Phil. Complete all pages, including response a to all questions. If any necessary information is missing in the problem, assume a logical answer and record it. Do not prepare Schedule K-1 or other required supple- mental forms for Kate at this time. Use the Worksheet for Figuring Net Earnings (Loss) from Self-Employment included in the Form 1065 instructions to calculate the partners' self-employment income. Note that if you are preparing a 2019 Form 1065 you will need to adjust all indicated years in this problem to fit the 2019 tax year