Question 6 Jim, Lola, and Sean are equal partners in the TeaTree Partnership This is a general partnership, and all three partners are active participants in the business TeaTree uses the accrual method of accounting TeaTree has provided the following information for 2018 Operating income before items listed below $208,000 Rental income 60,000 Interest incomeMunicipal bonds 35,000 Corporate bonds 8,000 Dividends from a 40 owned corporation 95,000 Dividends from a 15 owned corporation 60,000 Gains and losses on property sales NLTCG 20,000 NSTCL 14,000 Sec 1231 loss 12,000 Sec 1245 gain 8,000 Accounting depreciationRental property 24,000 Equipment 54,000 Interest expenseMortgage on rental property 36,000 Loan to acquire municipal bonds 10,000 Loan to acquire corporate bonds 3,000 Guaranteed payment to Jim 30,000 Contribution to the United Way 150,000 Additional Information The partnerships marketing manager had a heart attack and died during the year Jim stepped in to cover until a new marketing manager was hired Lola and Sean decided to give him a $30,000 guaranteed payment to compensate him This is the amount that the partnership would have paid to a marketing manager during this interim period The partnership received a $20,000 prepayment of rent from its lessee but has not included it in the $60,000 of rental income above MACRS depreciationRental property $20,000 Equipment 66,000 Tea Tree bought a new machine in 2018 for $150,000 and took Sec 179 on it Required Calculate TeaTrees ordinary income loss for tax purposes Identify TeaTrees separately stated items for tax purposes Assume that TeaTree is a C corporation instead of a partnership Calculate Tea Trees taxable income Lola has learned that other entities with similar operations to TeaTree operate as S corporations or C corporations She wants to know if TeaTree should continue as a partnership or if it would be more advantageous to convert to an S or C corporation The partners personal tax rates range from 12 percent to 32 percent

The Answer is in the image, click to view ...

Answered step by step

Verified Expert Solution

Link Copied!

Question

1 Approved Answer

Posted on Sep 29, 2024

Question 6 Jim, Lola, and Sean are equal partners in the TeaTree Partnership. This is a general partnership, and all three partners are active participants

Question 6

Jim, Lola, and Sean are equal partners in the TeaTree Partnership. This is a general partnership, and all three partners are active participants in the business. TeaTree uses the accrual method of accounting. TeaTree has provided the following information for 2018:

Operating income before items listed below $208,000

Rental income 60,000

Interest incomeMunicipal bonds 35,000

Corporate bonds 8,000

Dividends from a 40%-owned corporation 95,000 Dividends from a 15%-owned corporation 60,000

Gains and losses on property sales:

NLTCG 20,000

NSTCL 14,000 Sec. 1231 loss 12,000 Sec. 1245 gain 8,000

Accounting depreciationRental property 24,000

Equipment 54,000

Interest expenseMortgage on rental property 36,000

Loan to acquire municipal bonds 10,000

Loan to acquire corporate bonds 3,000

Guaranteed payment to Jim 30,000

Contribution to the United Way 150,000

Additional Information:

The partnerships marketing manager had a heart attack and died during the year. Jim stepped in to cover until a new marketing manager was hired. Lola and Sean decided to give him a $30,000 guaranteed payment to compensate him. This is the amount that the partnership would have paid to a marketing manager during this interim period.
The partnership received a $20,000 prepayment of rent from its lessee but has not included it in the $60,000 of rental income above.
- MACRS depreciationRental property $20,000 Equipment 66,000
Tea Tree bought a new machine in 2018 for $150,000 and took Sec. 179 on it.

Required:

Calculate TeaTrees ordinary income/loss for tax purposes.
Identify TeaTrees separately stated items for tax purposes.
Assume that TeaTree is a C corporation instead of a partnership. Calculate Tea Trees taxable income.
Lola has learned that other entities with similar operations to TeaTree operate as S corporations or C corporations. She wants to know if TeaTree should continue as a partnership or if it would be more advantageous to convert to an S or C corporation. The partners personal tax rates range from 12 percent to 32 percent.