help completing the return

PARTNERSHIP TAX RETURN FALL 2011 Required: Complete Arlington Building Supply's (ABS) 2010 Form 1065 and Schedule D. Also complete Jerry Johnson and Steve Stillwell's Schedule K-1. The trial balance and tax return work papers are included in a separate file. Remember to review the trial balance for adjustments that may need to be made. If any information is missing, use reasonable assumptions to fill in the gaps. Form 4562 for depreciation is not required. Use the amount of tax depreciation and Section 179 expense provided in the income statement and the facts below to complete the appropriate lines on the first page and on Schedule K of the Form 1065. Form 4797 for the sale of trade or business property is not required. Use the amount of gain and loss from the sale of the truck and forklifts in the income statement and the information provided in the facts below to complete the appropriate lines on the first page and on Schedule K of the Form 1065. If any information is missing, use reasonable assumptions to fill in the gaps. Facts: On January 1 of 2000, two enterprising men in the community, Jerry Johnson and Steve Stillwell, anticipated a boom in the local construction industry. They decided to sell their small businesses and pool their resources as general partners in establishing a retail outlet for lumber and other building materials, including a complete line of specialty hardware for prefab houses. Their general partnership was officially formed under the name of Arlington Building Supplies and soon became a thriving business. ABS is located at 2174 Progress Ave., Arlington, Illinois 64888. ABS's Employer Identification Number is 91-3697984 ABS's business activity is retail construction. Its business activity code is 444190. Both general partners are active in the management of ABS. Jerry Johnson's Social Security number 500-23-4976. His address is 31 W. Oak Drive, Arlington, IL 64888. Steve Stillwell's Social Security number 374-68-3842. His address is 947 E. Linder Street, Arlington, IL 64888. ABI Income Statement For year ending December 31, 2010 Sales (on account) Less: Sales returns $410,000 -20,000 $390,000 -150,000 $240,000 Cost of goods sold Gross profit on sales Operating expenses Salaries and wages (including partners' guaranteed payments) $79,000 Property Taxes 1,600 Payroll taxes 2,450 Depreciation and 179 expense 40,062 Advertising 2,000 Bad debt expense 3,850 Office expense 1,800 Repairs 2,150 Miscellaneous Fire insurance 450 4,850 Net operating income 138,212 $101,788 ABS uses the accrual method of accounting and has a calendar year end. The partnership maintains its books according to the Section 704(b) regulations. Under this method of accounting, all book and tax numbers are equivalent except for life insurance premiums and tax exempt interest. The partners' percentage ownership of original contributed capital is 30% for Johnson and 70% for Stillwell. They agree that profits and losses will be shared according to this same ratio. Any additional capital contributions must be made in these same ratios. The capital accounts may vary from these percentages from time to time as a result of withdrawals made by the partners, but in no event may the year-end capital account balances vary from the 30:70 ratio by more than 5 percent of total capital. For their services to the company, the partners will receive the following annual guaranteed payments: o Johnson $28,000 o Stillwell $21,000 Johnson is expected to devote all his time to the business, while Stillwell will devote approximately 75 percent of his. Two forklifts were sold in September. The old lifts were purchased new four years ago. Two new forklifts were purchased on September 1, for $32,000 and the partnership intends to immediately expense them under Section 179. The truck sold this year was purchased several years ago. $16,099 of the total gain from the sale of the truck was recaptured as ordinary income under IRC Section 1245. The partnership uses currently allowable tax depreciation methods for both regular tax and book purposes. Assume alternative minimum tax depreciation equals regular tax depreciation. The partners decided to invest in a small tract of land with the intention of selling it about a year later at a substantial profit. On September 30, they executed a $50,000 note with the bank to obtain the $70,000 cash purchase price. Interest on the 18 percent note is payable quarterly, and the principal is due in one year. The first interest payment of $2,250 was made on December 30. The note payable to the bank as well as the accounts payable are treated by the partnership as recourse debt. Assume the total recourse debt is allocated $28,776 to Jerry and $70,224 to Steve. Some years after the partnership was formed, a mortgage of $112,500 was obtained on the land and warehouse from Commerce State Bank. Principal payments of $4,500 must be paid each December 31, along with eight percent interest on the outstanding balance. The holder of the note agreed therein to look only to the land and warehouse for his security in the event of default. Because this mortgage is nonrecourse debt, it should be allocated among the partners according to their profit sharing ratios. The partnership values its inventory at lower of cost or market and uses the FIFO inventory method. Assume the rules of 263A do not apply to ABS. During the year, the partnership bought three hundred shares of ABC, Ltd. for $6,100 on February 8, 2010. All the shares were sold for $6,650 on April 2, 2010. Two hundred shares of XYZ Corporation were sold for $10,600 on September 13, 2010. The stock was purchased on December 1, 2003. The following dividends were received: o XYZ (qualified) $400 o ABC, Ltd. (not qualified) 295 The partnership received interest income from the following sources: o Interest on Illinois municipal bonds $3,200 o Interest on savings 560 o Interest on accounts receivable 500 The partnership donated $5,000 cash to the Red Cross. Life insurance policies on the lives of Johnson and Stillwell were purchased in the prior year. The partnership will pay all the premiums and is the beneficiary of the policy. The premiums for the current year were $3,000, and no cash surrender value exists for the first or second year of the policy. The partners withdrew the following cash amounts from the partnership during the year (in addition to their guaranteed payments): o Johnson $20,000 o Stillwell $35,000 The following are ABS's book balance sheets as of December 31, 2009, and December 31, 2010: 12/31/10 12/31/09 $ 70,467 76,000 60,000 50,000 40,200 $ 66,000 (58,697) $120,000 (39,875) 90,000 $474,095 $ 43,042 57,000 50,000 50,000 50,000 $ 16,500 (13,649) $ 50,000 (34,376) $120,000 (36,798) 20,000 $371,719 $ 49,000 50,000 63,000 94,553 217,542 $474,095 $ 45,500 0 67,500 82,040 176,679 $371,719 Assets Cash Accounts receivable Inventories Investment in municipal bonds Investment in XYZ common stock Truck Less accumulated depreciation Machinery and equipment Less accumulated depreciation Building Less accumulated depreciation Land TOTALS Liabilities and Capital Accounts payable Notes payable Mortgage payable Capital: Jerry Johnson Steve Stillwell TOTALS