John Scoots LP, a calendar-year partnership, provides scooter repair services and rents scooters. The business started on January 1, Year 1. John owns 60% of the partnership, and Kate owns 40%. John, a general partner, manages the shop and receives a guaranteed payment from the partnership. Kate is a limited partner and is not involved in the operations of the business.

Financial Statements and Data Click on each accordion to view the information needed to complete Part 1. JOHN SCOOTS INCOME STATEMENT John Scoots Income Statement Year 1 Year 2 Service revenue $60,000 $88,000 Rental revenue 81,000 130,000 Parts sales revenue 9,000 15,000 Total revenue $150,000 $233,000 Guaranteed payment (John) $78,000 $84,000 Rent expense 55,000 56,000 Parts used 10,000 10,000 16,000 Utilities expense 5,000 5,000 Interest expense 6,000 6,000 Late filing penalty 700 0 Charitable contributions 0 1,000 Depreciation (MACRS tax method) 10,000 16,000 Advertising expense 5,300 4,000 Total expenses $170,000 $191,000 Net income (loss) $(20,000) $ 45,000 J Scoots CONTRIBUTIONS & DISTRIBUTIONS John Scoots Owner Contributions and Distributions John 60% Kate 40% Year 1 Contributions Cash $ 10,000 $ 48,000 Refurbished Scooters Cost Basis $ 48,000 Fair Market Value $ 53,000 Shop Equipment Cost Basis $ 14,000 Fair Market Value $ 10,000 Year 2 Cash Contributions $ 18,000 $ 12,000 JOHN SCOOTS BALANCE SHEET John Scoots Balance Sheet Year Ending December 31, Year 1 Year Ending December 31, Year 2 Cash $38,000 $48,000 Parts inventory 7,000 9,000 Prepaid rent 5,000 5,000 Rental scooters 50,000 70,000 Accumulated depreciation (8,000) (22,000) Shop equipment 15,000 15,000 Accumulated depreciation (3,000) (5,500) Land for future expansion 45,000 45,000 Total assets $149,000 $164,500 Trade accounts payable $7,000 $12,000 Bank loan payable (secured by land) 42,000 27,500 JOHN SCOOTS BALANCE SHEET John Scoots Balance Sheet Year Ending December 31, Year 1 Year Ending December 31, Year 2 Cash $38,000 $48,000 Parts inventory 7,000 9,000 Prepaid rent 5,000 5,000 Rental scooters 50,000 70,000 Accumulated depreciation (8,000) (22,000) Shop equipment 15,000 15,000 Accumulated depreciation (3,000) (5,500) Land for future expansion 45,000 45,000 Total assets $149,000 $164,500 Trade accounts payable $7,000 $12,000 Bank loan payable (secured by land) 42,000 27,500 Total liabilities $49,000 $49,500 John, capital account (60%) $60,000 $69,000 Kate, capital account (40%) 40,000 46,000 Total capital $100,000 $115,000 Total liabilities and capital $149,000 $164,500 D 25 Separately stated expense items Year 1 Ending Basis in 26 Partnership Interest 27 Year 2: 28 Contributions Increase in partnership recourse 29 debt (accounts payable) Increase in partnership nonrecourse 30 secured debt (land) 31 Ordinary business income 32 Nontaxable income 33 Separately stated income items Guaranteed payment (John) 34 Decrease in partnership recourse 35 debt (accounts payable) Decrease in partnership 36 nonrecourse secured debt (land) 37 Distributions 38 Nondeductible expenses 39 Ordinary business loss Separately stated expense items 40 41 Year 2 Ending Basis in 42 John Kate 12 13 Year 1: 14 Beainnina basis in partnership 15 Contributions Partnership recourse debt (trade 16 accounts Davable! Partnership nonrecourse secured 17 debt iland 18 Ordinary business income 19 Nontaxable income 20 Separately stated income items 21 Guaranteed payment iJohnl 22 Distributions 23 Nondeductible expenses 24 Ordinary business loss 25 Separately stated expense items Year 1 Ending Basis in 26 Partnership Interest 27 Year 2: 28 Contributions Increase in partnership recourse 29 debt (accounts payable) Increase in partnership nonrecourse 30 secured debt (land) 31 Ordinary business income 32 Nontaxable income 33 Separately stated income items Guaranteed payment (John) 34 Financial Statements and Data Click on each accordion to view the information needed to complete Part 1. JOHN SCOOTS INCOME STATEMENT John Scoots Income Statement Year 1 Year 2 Service revenue $60,000 $88,000 Rental revenue 81,000 130,000 Parts sales revenue 9,000 15,000 Total revenue $150,000 $233,000 Guaranteed payment (John) $78,000 $84,000 Rent expense 55,000 56,000 Parts used 10,000 10,000 16,000 Utilities expense 5,000 5,000 Interest expense 6,000 6,000 Late filing penalty 700 0 Charitable contributions 0 1,000 Depreciation (MACRS tax method) 10,000 16,000 Advertising expense 5,300 4,000 Total expenses $170,000 $191,000 Net income (loss) $(20,000) $ 45,000 J Scoots CONTRIBUTIONS & DISTRIBUTIONS John Scoots Owner Contributions and Distributions John 60% Kate 40% Year 1 Contributions Cash $ 10,000 $ 48,000 Refurbished Scooters Cost Basis $ 48,000 Fair Market Value $ 53,000 Shop Equipment Cost Basis $ 14,000 Fair Market Value $ 10,000 Year 2 Cash Contributions $ 18,000 $ 12,000 JOHN SCOOTS BALANCE SHEET John Scoots Balance Sheet Year Ending December 31, Year 1 Year Ending December 31, Year 2 Cash $38,000 $48,000 Parts inventory 7,000 9,000 Prepaid rent 5,000 5,000 Rental scooters 50,000 70,000 Accumulated depreciation (8,000) (22,000) Shop equipment 15,000 15,000 Accumulated depreciation (3,000) (5,500) Land for future expansion 45,000 45,000 Total assets $149,000 $164,500 Trade accounts payable $7,000 $12,000 Bank loan payable (secured by land) 42,000 27,500 JOHN SCOOTS BALANCE SHEET John Scoots Balance Sheet Year Ending December 31, Year 1 Year Ending December 31, Year 2 Cash $38,000 $48,000 Parts inventory 7,000 9,000 Prepaid rent 5,000 5,000 Rental scooters 50,000 70,000 Accumulated depreciation (8,000) (22,000) Shop equipment 15,000 15,000 Accumulated depreciation (3,000) (5,500) Land for future expansion 45,000 45,000 Total assets $149,000 $164,500 Trade accounts payable $7,000 $12,000 Bank loan payable (secured by land) 42,000 27,500 Total liabilities $49,000 $49,500 John, capital account (60%) $60,000 $69,000 Kate, capital account (40%) 40,000 46,000 Total capital $100,000 $115,000 Total liabilities and capital $149,000 $164,500 D 25 Separately stated expense items Year 1 Ending Basis in 26 Partnership Interest 27 Year 2: 28 Contributions Increase in partnership recourse 29 debt (accounts payable) Increase in partnership nonrecourse 30 secured debt (land) 31 Ordinary business income 32 Nontaxable income 33 Separately stated income items Guaranteed payment (John) 34 Decrease in partnership recourse 35 debt (accounts payable) Decrease in partnership 36 nonrecourse secured debt (land) 37 Distributions 38 Nondeductible expenses 39 Ordinary business loss Separately stated expense items 40 41 Year 2 Ending Basis in 42 John Kate 12 13 Year 1: 14 Beainnina basis in partnership 15 Contributions Partnership recourse debt (trade 16 accounts Davable! Partnership nonrecourse secured 17 debt iland 18 Ordinary business income 19 Nontaxable income 20 Separately stated income items 21 Guaranteed payment iJohnl 22 Distributions 23 Nondeductible expenses 24 Ordinary business loss 25 Separately stated expense items Year 1 Ending Basis in 26 Partnership Interest 27 Year 2: 28 Contributions Increase in partnership recourse 29 debt (accounts payable) Increase in partnership nonrecourse 30 secured debt (land) 31 Ordinary business income 32 Nontaxable income 33 Separately stated income items Guaranteed payment (John) 34