I am working on the partnership tax return and I have some problems. Can you please help? Thank you!
Total liabilities ano snarerrurutrD svu', PARTNERSHIP TAX RETURN PROBLEM Required: . . Using the information provided beloW complete Arlington Building Supplyt (ABS] 2010 Form l06jand Schedule D. Also complete Jerry Johnson and Steve Stillwell's Schedule K-1' Form 4562 for depreciation is not required. use the amount of tax depreciation ana $tll expense provided in the income statement and the C-14 Appendix C ' ' information in #4belorv to complete the appropriate iines on the first page and on Schedule K of the Form 1065. Fotm 4797 for the sale of trade or business property is not required. Use the amount of garn and loss from the sale of the truck and forkiifls in the income statement and the information provided in #4 and #5 below to complete the appropriate lines on the firsr page and on schedule K of the Form 1b65. If any information is missing, use reasonabie assumptions to fill in any gaps. ' The forms, schedules, and instructions can be found at the IRS web site (www.irs.gov). The instructions can be helpful in completing the forms. Facts: on January 1, 2000, trvo enterprising men i' the community, Jerry Johnson and Steve "Swiss" Stillwell, anticipated a boom in the local consiruction industry. They decided to sell their small businesses and pool their resources as general partneis in establishing a retail outlet for lumber and other building materi-als, inciuding a complete line of specralty hardware for prefab tree-houses. Tf,eir general partnerstip was officialiy formed under the name of Arlington Building Supply and soon became a thriving business. ' ABS is located at2114 progress Ave., Arrington,Ilfinois 64gg8. . ABS's Employer Identification Number is 9l-36979g4. ' ABS's business activity is retail construction. Its business activity . Both general partners are active in the managenent of ABS. code is 444190. ' Jerry Johnson's sociai Security number is 500-23-4976. His address is 3l w Oak Drive, Ariington, IL 6488g. Steve Stillwell's Social Security number is 374-68-38 42. His address ' is 947 E. Linder Street, Arlington, IL 64ggg. ' ABS uses the accruai method of accounting and has a calendar year-end. The following is ABS's 2010 income statemenr: ABI lncome Statement For year ending December 31, 2010 Sales (on account) Less: Sales returns $410,000 -20,000 $390,000 Cost of goods sold -_1q9p99 Gross profit on sales $240,000 0perating expenses Salaries and wages (including partners' guaranteed payments) Propeny taxes Payroll taxes Depreciation and 129 expense Adveftising Bad debt expense $ 79,000 1,600 2,450 40,062 2,000 3,850 Office expense 1,800 Repairs 2,150 Mlscellaneous tF'n Fire insurance 4,850 Net operating income 138,212 $ 10 1,788 Appendix ABI lncome Statement For year ending December 31, 2010 Other income Gain on sale of securities $ Gain on sale of truck Dividend income 4,260 lnterest income Other deductions lnterest on mortgage lnterest on notes payable Charitable contributions Life insurance premiums Loss on sale of forklifts NFI 1,350 16,399 695 $ 22,704 $724,492 5,400 2,250 5,000 3,000 466 16,1 16 $ INCON4E 108,376 Notes: 1. The partnership maintains its books according to the $704(b) regulations. Under this method of accounting, all book and tax numbers are equivalent except for life insurance premiums and tax-exempt interest. 2. The partners' percentage ownership of original contributed capital is 30 percent for Johnson and 70 percent 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 valy lrom 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. 3. For their services to the company, the partners will receive the following annual guaranteed payments: Johnson Stillwell $28,000 $21,000 Johnson is expected to devote all his time to the business, while Stillwellwill devote approximately 75 percent of his. 4. Two forklilts were sold in September 2010. The old lilts were purchased new four years ago. Two new lorklilts were purchased on September 1, 2010, for $32,000 and the partnership intends to immediately expense them under $179. 5. The truck sold this year was purchased several years ago. $16,099 of the total gain from the sale of the truck should be recaptured as ordinary income under rRC $1245. uses currently allowable tax depreciation methods for both regular tax and book purposes and has adopted a policy of electing not to take bonus depreciation. Assume alternative minimum tax depreciation equals regular tax depreciation. i. 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, 2010, they executed a $50,000 note with the bank to obtain the $70,000 cash purchase price. Interest on the 1B percent note is payable quartefly, and the principal is due in one year. The first interest payment of $2,250 was made on December 30, 2010. 8. 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 $28,116 to Jerry and$70,224 to Steve. 9. Some years after the partnership was formed, a mortgage of $112,500 was obtained on the land and warehouse from Commerce State Bank. Principal 6. The partnership C C-15 C-16 Appendix C payments of $4,500 must be paid each December 31, along with B 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. 10. The partnership values its inventory at lower of cost or market and uses the FIFO inventory method. Assume the rules of 92634 do not apply to ABS. 11. During the year, the partnership bought 300 shares of ABC, Ltd., for $6,100 on February 8, 2010. Aii the shares were sold for $6,650 on April 2,2010. 12. Two hundred shares of XYZ Corporation were sold for $10,600 on September 13, 2010. The stock was purchased on December 1,2004, and is not eligible for the 28 percent capital gains rate. 13. The following dividends were received: XYZ (qualified) $400 ABC, Ltd. (not qualified) Total q!91 29s 14. The partnership received interest income from the following sources: Interest on Illinois municipal bonds Interest on savings Interest on accounts receivable Total $3,200 560 500 g!260 15. The partnership donated $5,000 cash to the Red Cross. 16. Life iusurance policies on the lives of Johnson and Stillwell were purchased in the prior year. The partnership u,ill pay all the premiums and is the beneficiary of tire 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. 17. The partners withdrew the following cash amounts from the partnership during the year (in addition to their guaranteed payments): Johnson Stillr.vell $20,000 $35,000 The lollowing are ABS's balance sheets as of January 1,2010, and December 31, 2010. L2/31/1,0 $ 70,467 Cash Accounts receivable inventories lnvestment in municipal bonds Investment in XYZ common stock t2/3r/0e $ 76,000 60,000 50,000 40,200 $ 16,500 13,649 $ Truck 43,042 57,000 50,000 50,000 50,000 50,000 Less accumulated depreciation 2,851 Machinery and equipment Less accumulated depreciation $ 66,000 58,697 34,376 7,30s Building Less accumuiated depreciation $ 120,000 39,975 15,624 $ 120,000 36,798 80,125 Land TOTALS 83,202 90,000 20,000 s4]1p99 $371,7 19 Appendix t2/3t/to L2/3t/Be $ $ !iabilities and Capital Accounts payable Notes payable Mortgage payable Capital: .lerry Johnson Steve Stillwell TOTALS 49,000 50,000 63,000 94,553 45,500 0 67,500 82,040 2r7,542 176,679 $474,095 $37 1,7 19 C C-L7
