CORPORATION INCOME TAXATION

SUMMER II SEMESTER 2019

INCOME TAX PROJECT

EXTRA CREDIT

FACTS

Valerie Lawson and Clara Norman are the sole equal partners in the general partnership of Lawson And Norman Enterprises.The partnership, which is a retail office supplies and stationery store, began its operations on January 2, 1985.For Federal Income Tax purposes, the partnership is a calendar year taxpayer and uses the Accrual Method Of Accounting.Its Employer Identification Number is 76-1234567, address is 4369 Robbie Lane Houston, Texas 77026-3915, telephone number is (281) 479-8132, fax number is (281) 536-1908 and E-Mail address is "lawsonandnormanenterprises.com".The business activity code for the partnership is 453210.Both partners devote one hundred percent (100%) of their time to the business of the partnership and are equal partners of the partnership in every respect (ie. profit sharing ratio, loss sharing ratio, ownership, etc.).Valerie Lawson, who is the designated Tax Matters Partner for the partnership, has social security number of 234-56-7890, her address is 8124 Annette Court Houston, Texas 77031-9475 and her telephone number is (832) 246-8015.Clara Norman has social security number of 890-12-3456, her address is 2716 Nanette Drive Houston, Texas 77061-3459 and her telephone number is (832) 623-5097.

FINANCIAL INFORMATION

During the year of 2018, the Lawson And Norman Enterprises reported the following Income and Expenses (including necessary accruals) for Financial Accounting purposes:

Gross Receipts$1,482,000

Sales Returns And Allowances109,000

Purchases510,000

Dividends Received From Stock (Not Qualified Dividends)

Investments In Less Than twenty percent (20%)

Owned United States (U. S.) Corporation80,000

Interest Income:

Taxable Interest18,000

Tax-Exempt Interest7,200

Guaranteed Payments:Valerie Lawson75,000

(Services)Clara Norman75,000

Salaries - Employees108,000

Repairs And Maintenance19,300

Rent Expense - Office84,000

Rent Expense - Equipment15,500

Payroll Taxes (Federal And State)19,600

Interest Expense (Trade Or Business Interest)25,200

Advertising Expense44,500

Charitable Contributions ("50%" Charities)48,000

Legal And Professional Fees28,800

Depreciation Expense 50,000 *

Utilities Expense 27,300

Employee's Health Insurance Premiums14,200

Entertainment Of Clients5,000

Partners' Life Insurance Premiums14,400 **

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* - Based upon Straight-Line Depreciation, a useful life of five (5) years and no salvage value for all assets (see specific assets below).

** - Lawson And Norman Enterprises Is The Designated Beneficiary.

On January 1, 2018, the partner's Capital Accounts equaled $157,200 each.No additional capital contributions were made during the year of 2018 and each partner made a total of $140,000 (all cash) withdrawals throughout the course of the year of 2018.

The Lawson And Norman Enterprises owns the following depreciable assets:

ASSET DESCRIPTIONDATE ACQUIREDORIGINAL COST

Automobile - 2017 Lexus 460April 1, 2017$ 50,000

(Five-year Property)

Automobile - 2017 Cadillac Seville April 1, 201750,000

(Five-year Property)

Furniture And FixturesMay 1, 2016150,000

(Seven-year Property)

Each automobile was used a total of 18,000 miles during the year of 2018 all which were business miles.The automobiles were not available for personal use during off-duty hours and were used solely by Valerie Lawson and Clara Norman, who both have another vehicle available for personal use. For Federal Income Tax purposes, all of these assets are depreciated using the Modified Accelerated Cost Recovery System (MACRS).Section 179 Deduction was not elected in regards to any of these assets nor was Straight-Line Depreciation used.

BALANCE SHEETS

The Balance Sheets (Financial Accounting) for the Lawson And Norman Enterprises at the beginning and ending of the year of 2018 are as follows:

ASSETSJanuary 1December 31

Cash$36,000$84,000

Trade Notes And Accounts Receivable 96,00090,000

Inventory(Valued At Cost) * 120,000100,000

Marketable Securities - Long Term 140,000250,000

Depreciable Assets (And Land) 260,000 **260,000 **

Less: Accumulated Depreciation(65,000)(115,000)

Other Assets (Deposits)12,00012,000

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TOTAL ASSETS$ 599,000$ 681,000

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LIABILITIES AND PARTNERS' CAPITAL

Accounts Payable (Non Recourse) $96,000$ 116,200

Notes Payable - Short Term (Recourse)24,60024,000

Notes Payable - Long Term (Recourse)164,000212,000

Partner's Capital (Total) 314,400328,800

TOTAL LIABILITIES AND------------------------

PARTNERS' CAPITAL$ 599,000$ 681,000

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*- The rules of Section 263A of the Internal Revenue Code do not apply to the partnership.

** - Includes $10,000 allocated to Land.

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OTHER INFORMATION

Both partners are United States citizens (and individuals) and the partnership is not a partner in any other partnership.The partnership is not subject to the consolidated audit procedures of Sections 6221 through 6233 of the Internal Revenue Code and the partnership does not meet all three (3) requirements shown in the instructions (Schedule B) for Question 5.In addition, the partnership is not a publicly traded partnership as defined in Section 469(k)(2) of the Internal Revenue Code and the partnership has not filednor is required to file Form 8264 - Application For Registration Of A Tax Shelter.During the year of 2018, Lawson And Norman Enterprises had no interest in or signature or other authority over any financial account in a foreign country.Furthermore, during the year of 2018, the partnership did not receive a distribution from nor was the partnership a grantor of, or transferor to, a foreign trust.Finally, there were no distributions of property or transfer of a partnership interest during the year of 2018.

REQUIRED

Prepare the Partnership Return for the Lawson And Norman Enterprises for the year of 2018 and Schedule K-1 for both partners.The following Forms are needed to complete the Return:

Form 1065

Schedule B-1 (Form 1065)

Form 1125-A

Schedule K-1 (Form 1065) (2)

Form 4562

The Income Tax Return is due on JULY 26, 2019.(PLEASE REMEMBER TO PUT YOUR NAME ON THE PROJECT).

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CHECK FIGURESFORM 1065INCOME (Page 1)

1.Total Income (Loss) (Line 8): $843,000.

DEDUCTIONS (Page 1)

1.Guaranteed Payments To Partners (Line 10): $150,000. (Also Line 4 - SCHEDULE K (Page 4))

2.Depreciation (Line 16a and 16c): $36,437.(Also Line 22 - Form 4562)

3.Total Deductions (Line 21): $575,337.

4.Ordinary Income (Loss) (Line 22): $267,663.

SCHEDULE K (Page 4)

1.Interest Income (Line 5): $18,000.

2.Ordinary Dividends (Line 6a): $80,000.

3.Charitable Contributions (Line 13a): $48,000.

4Net Earnings (Loss) From Self-Employment (Line 14a): $417,663.

5.Gross Nonfarm Income (Line 14c): $843,000.

SCHEDULE M-1 (Page 5)

1.Net Income (Loss) Per Books (Line 1): $294,400.

2.Expenses Recorded On Books This Year

Not Included On Schedule K (Itemize) (Line 4): $30,463.

SCHEDULE M-2 (Page 5)

1.Balance At End Of Year (Line 9): $328,800.

SCHEDULE K-1 (Each) (Page 1)

1.Ordinary Income (Loss) From Trade Or Business (Line 1): $133,831.

2.Interest Income (Line 5): $9,000.

3.Ordinary Dividends (Line 6a): $40,000.

4.Guaranteed Payments To Partner (Line 4): $75,000.

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