Equal members Stu Price and Doug Billings form Smiles, LLC, a dental practice.

Price contributed cash basis accounts receivables of $15,000 (since cash basis there is a $0 tax basis for the receivables) and depreciated equipment (Equipment # 1) with a fair market value of $21,000 and adjusted basis of $3,000. The equipment has a three year remaining recovery period.

Billings is new to the profession and contributes equipment (Equipment #2) he purchased for $36,000 from a retiring practitioner.

Member	Tax Basis	704(b) Basis
Capital, Stu Price	$ 3,000_	$ 36,000
Accounts Receivable	$_ 0_	$ 15,000
Equipment #1	$ 3,000_	$ 21,000
Capital, Doug Billings	$ 36,000_	$ 36,000
Equipment #2	$ 36,000_	$ 36,000

Tax Basis

Accounts Receivable	$ 0
Equipment #1	$ 3,000
Equipment #2	$ 36,000

(1) Prepare the TAX INCOME for Smiles, LLC based off the below Book Income Statement. You will have to make some adjustments due to Book/Tax differences.

The income statement (cash basis) per books for the first year of Smiles, LLC operations is as follows:

Sales Revenue	$291,000	Does not include the collection of A/R from Discussion # 2
COGS, Payroll and G&A Exp	(130,400)
Depreciation Exp Equip #1	(7,000)	($21,000 3 yrs)
Depreciation Exp Equip #2	(3,600)	($36,000 5 yrs x year)
Net Income per Books	$ 150,000