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 2017, 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 Allowances 109,000 Purchases 510,000 Dividends Received From Stock (Not Qualified Dividends) Investments In Less Than twenty percent (20%) Owned United States (U. S.) Corporation 80,000 Interest Income: Taxable Interest 18,000 Tax-Exempt Interest 7,200 Guaranteed Payments: Valerie Lawson 75,000 (Services) Clara Norman 75,000 Salaries - Employees 108,000 Repairs And Maintenance 19,300 Rent Expense - Office 84,000 Rent Expense - Equipment 15,500 Payroll Taxes (Federal And State) 19,600 Interest Expense (Trade Or Business Interest) 25,200 Advertising Expense 44,500 Charitable Contributions ("50%" Charities) 48,000 Legal And Professional Fees 28,800 Depreciation Expense 50,000 * Utilities Expense 27,300 Employee's Health Insurance Premiums 14,200 Entertainment Of Clients 5,000 Partners' Life Insurance Premiums 14,400 ** -1- * - 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, 2017, the partner's Capital Accounts equaled $157,200 each. No additional capital contributions were made during the year of 2017 and each partner made a total of $140,000 (all cash) withdrawals throughout the course of the year of 2017. The Lawson And Norman Enterprises owns the following depreciable assets: ASSET DESCRIPTION DATE ACQUIRED ORIGINAL COST Automobile 2016 Lexus 460 April 1, 2016 $ 50,000 (Five-year Property) Automobile 2016 Cadillac Seville April 1, 2016 50,000 (Five-year Property) Furniture And Fixtures May 1, 2015 150,000 (Seven-year Property) Each automobile was used a total of 18,000 miles during the year of 2017 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 2017 are as follows: ASSETS January 1 December 31 Cash $ 36,000 $ 84,000 Trade Notes And Accounts Receivable 96,000 90,000 Inventory (Valued At Cost) * 120,000 100,000 Marketable Securities - Long Term 140,000 250,000 Depreciable Assets (And Land) 260,000 ** 260,000 ** Less: Accumulated Depreciation (65,000) (115,000) Other Assets (Deposits) 12,000 12,000 ------------ ------------ TOTAL ASSETS $ 599,000 $ 681,000 ======= ======= LIABILITIES AND PARTNERS' CAPITAL Accounts Payable (Non Recourse) $ 96,000 $ 116,200 Notes Payable - Short Term (Recourse) 24,600 24,000 Notes Payable - Long Term (Recourse) 164,000 212,000 Partner's Capital (Total) 314,400 328,800 TOTAL LIABILITIES AND ------------ ------------ PARTNERS' CAPITAL $ 599,000 $ 681,000 ======= ======= * - The rules of Section 263A of the Internal Revenue Code do not apply to the partnership. ** - Includes $10,000 allocated to Land. -2- 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 filed nor is required to file Form 8264 - Application For Registration Of A Tax Shelter. During the year of 2017, 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 2017, 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 2017. REQUIRED Prepare the Partnership Return for the Lawson And Norman Enterprises for the year of 2017 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