Phil Smith and Kate Jones formed the P&K General Partnership on March 1, 2014 to provide computer consulting services. Partnership profits and losses are allocated 60% to Phil and 40% to Kate. The business code and employer identification numbers are 514519 and 24-3897625, 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 Phil and 518-72-9147 for Kate.

The calendar year, cash basis partnerships December 31, 2019 balance sheet and December 31, 2020 trial balance (both prepared for tax purposes) contain the following information:

Notes:

1. The investment account consists of marketable securities of U.S. corporations and U.S. Treasury Bonds. All of the dividends are considered qualifed dividends.
2. Equipment was sold May 12, 2020 for $9,800. It was purchased new on May 1 of the prior year for $10,000 and its basis when sold was $6,300.
3. New equipment was purchased March 1, 2020 with $5,000 cash and a $35,000 three-year recourse note payable. The first note payment is March 1, 2021. (Note: the correct amount of tax depreciation is included in the depreciation expense account in the trial balance).
4. Notes payable are long-term except for $20,000 of the recourse notes to be paid next year. All liabilities were created by the partnership.
5. The partners drawing accounts record cash distributions made to the partners throughout the year.
6. Compensation is composed of guaranteed payments of $30,000 each to Phil and to Kate and $50,000 to unrelated employees.
7. Health insurance premiums paid were for unrelated employees.

Task:

Prepare a 2020 Form 1065. Complete all pages, including responses to all questions. If any necessary information is missing in the problem, assume a logical answer and record it. Use the worksheet for Figuring Net Earnings (Loss) from Self-Employment included in the 1065 instructions to calculate the partners self-employment income.

Phil Smith and Kate Jones formed the P&K General Partnership on March 1, 2014 to provide computer consulting services. Partnership profits and losses are allocated 60% to Phil and 40% to Kate. The business code and employer identification numbers are 514519 and 24-3897625, 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 Phil and 518-72-9147 for Kate. The calendar year, cash basis partnership's December 31, 2019 balance sheet and December 31, 2020 trial balance (both prepared for tax purposes) contain the following information: Balance Sheet 12/31/2019 Debit Credit 12,000 14,000 150,000 38,000 58,000 36,000 28,000 Trial Balance 12/31/2020 Debit Credit 22,000 14,000 190,000 63,500 87,200 30,000 28,000 25,440 16,000 16,960 235,000 1,000 400 16,000 Cash Investments (1) Equipment (2,3) Accumulated depreciation Recourse notes payable (4) Nonrecouse notes payable Phil, capital Phil, drawing (5) Kate, capital Kate, drawing (5) Revenues Dividend income (1) Interest income (1) Section 1245 gain (depreciation recapture) (2) Compensation (6) Rent expense Interest expense Tax expense (property and payroll) Repair expense MACRS depreciation Health insurance expense (7) Property insurance expense Office supplies expense Utility expense Charitable contributions Total 3,500 110,000 12,000 16,600 13,800 5,800 29,200 1,600 1,500 3,000 2,200 500 464,600 176,000 176,000 464,400 Phil Smith and Kate Jones formed the P&K General Partnership on March 1, 2014 to provide computer consulting services. Partnership profits and losses are allocated 60% to Phil and 40% to Kate. The business code and employer identification numbers are 514519 and 24-3897625, 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 Phil and 518-72-9147 for Kate. The calendar year, cash basis partnership's December 31, 2019 balance sheet and December 31, 2020 trial balance (both prepared for tax purposes) contain the following information: Balance Sheet 12/31/2019 Debit Credit 12,000 14,000 150,000 38,000 58,000 36,000 28,000 Trial Balance 12/31/2020 Debit Credit 22,000 14,000 190,000 63,500 87,200 30,000 28,000 25,440 16,000 16,960 235,000 1,000 400 16,000 Cash Investments (1) Equipment (2,3) Accumulated depreciation Recourse notes payable (4) Nonrecouse notes payable Phil, capital Phil, drawing (5) Kate, capital Kate, drawing (5) Revenues Dividend income (1) Interest income (1) Section 1245 gain (depreciation recapture) (2) Compensation (6) Rent expense Interest expense Tax expense (property and payroll) Repair expense MACRS depreciation Health insurance expense (7) Property insurance expense Office supplies expense Utility expense Charitable contributions Total 3,500 110,000 12,000 16,600 13,800 5,800 29,200 1,600 1,500 3,000 2,200 500 464,600 176,000 176,000 464,400