Phil Smith and Kate Jones formed the P&K General Partnership on March 1, 2016 to provide computer consulting services. Partnership profits are allocated 60% to Phil and 40% to Kate. The business code and employer identification numbers are 541511 and 24-3897624, respectively. The business office is located at 3010 East Apple Street, Atlanta, Georgia 30304. Phil and Kate live nearby at 1521 South Elm Street and 3315 East Apple Street respectively. Their Social Security Numbers are 403-16-5110 for Fill and 518-72-9147 for Kate. The calendar year, cash basis partnership's December 31, 2018 balance sheet and December 31, 2019 trial balance contain the following information: Balance Sheet (10) Trial Balance (10) 12/31/2018 12/31/2019 Debit Credit Debit Credit Cash. . .. . . . . . . . . ..$12,000 $32,600 Investments (1) . ...... . . . 22,000 14,000 Equipment (2, 3) . .. . .. . . .. . .............. 150,000 190,000 Accumulated Depreciation........... $38,000 63,500 Recourse Notes Payable (4) . .. ...... . . ..... 58,000 87,200 Nonrecourse Notes Payable (9) . . . .. . . .... 36,000 30,000 Phil, capital. . 36,000 36,000 Phil, drawing (5) .. 25,440 Kate, capital. . .... 16,000 16,000 Kate, drawing (5) . . 16,960 Revenues. ..... 235,000 Dividend Income (1) . ............... 1,000 Gain on Sale of ABC Stock (6) . .. . .. . . .... . 3,000 Section 1245 gain (depreciation recapture) 3,500 Compensation (7) . . . . . ... 110,000 Rent expense.......... 12,000 Interest expense. . . . ...... 16,600 Tax expense (property and payroll) . .. ... 13,800 Repair Expense. ... 5,800 MACRS depreciation. ... 29,200 Health insurance expense (8) . . ... .. . ..... 1,600 Property insurance expense (8) . .. ....... 1,500 Office Supplies expense. . . . . 3,000 Utility expense. ...... 2,200 Charitable contribution (11) . .. .......... 500 Total. .. .... $184,000 $184,000 $475,200 $475,200NOTES 8. 9. 10. 11. The investment account consists of marketable securities of U.S. corporations. All of the dividends are considered qualied dividends. Phil Smith made an additional contribution of 50 shares of ABC stock to partnership capital on November 8, 2018. Phil had purchased the stock on October 3, 2018 for $8,000; at the date of contribution the stock was worth $14,000. Equipment was sold May 12, 2019 for $9,800. It was purchased new on May 1 ofthe prior year for $10,000 and its basis when sold was $6,300. New equipment was purchased on March 1,2019 with $5,000 cash and a $35,000 threeyear recourse note playable. The rst note payment is March 1, 2020. (Note: The correct amount of tax depreciation is included on the depreciation expense account in the trial balance.) All recourse notes payable are longterm except for $20,000 of the recourse notes to be paid next year. All liabilities were created by the partnership. The partners' drawing accounts record cash distributions made to the partners throughout the year. The partnership sold the ABC stock on April 3,2019 for $17,000. Compensation is composed ofguaranteed payments of $30,000 each to Phil and to Kate and $50,000 of wages to unrelated employees. Health insurance premiums paid were for the unrelated employees. There is no minimum gain associated with the nonrecourse debt. These are 704(b) amounts per books. Use these amounts to calculate partner basis. Contribution of cash were made to public charities. Prepare a 2019 Form 1065, Schedule K, Schedules L and M [even though not required by the IRS instructions to Form 1065], and Schedule K-l for Phil as well as any other IRS forms necessary for a completed Form 1065 return. Complete all pages, including responses to all questions. If any necessary information is missing in the problem, assume a logical answer and record it Do not prepare Schedule K-l or any other required supplemental forms for Kate at this time. Use the Worksheet for Figuring Net Earnings (Loss) from SelfEmployment included in the Form 1065 Instructions to calculate the partners' self employment income and submit that form as well as any other appropriate Schedules or Forms