Required: 1.) Prepare the 2019 partnership tax return, include the additional schedules and forms as needed. Be sure to prepare a Schedule K-1 for each partner. 2.) Prepare a schedule for each partners basis in his or her partnership interest. At January 1, 2019 Banners basis was $1,504,878 and Parkers was $3,127,382.

Partnership Tax Return Wayne Company is located at 90 Fifth Avenue New York City, NY. The company is a general partnership using the calendar year and accrual basis for both book and tax purposes. It engages in the development and sale of specialized self-protection armor. The employer identification number (EIN) is 99-9999999. The company formed and began business on January 1, 2018. It does not have foreign partners or other foreign dealings. The company is neither a tax shelter or a publicly traded partnership. The company has made no distribution other than cash and no changes in ownership have occurred during the current year. Diana Banner is the Tax Matters Partner. The partnership makes no special elections.

Information on Partnership Formation:

Two individuals formed the partnership on January 1, 2018: Diana Banner (2500 Island Way, New York City, NY) and Bruce Parker (890 Arachnid Drive, New York City, NY). For a 30% interest, Banner contributed $1.2 million cash. She is an active general partner who manages the company. For a 70% interest, Parker contributed $2.32 million cash and 1,000 shares of Metro Corporation stock having a FMV of $480,000 at the time of contribution and a basis of $96,000 when originally acquired on January 2, 2016. Parker is an active general partner who designs and develops new products. For book purposes, the company recorded the contribution of stock at FMV.

Inventory and COGS

The company uses the periodic inventory method and prices its inventory using the lower of FIFO cost or market. Only beginning inventory, ending inventory, and purchases should be reflected in Schedule A. No other costs or expenses are allocated to cost of goods sold. The corporation is exempt from the uniform capitalization (UNICAP) rules because average gross income for the previous three years was less than $10 million. The following information should also be included on the applicable form:

Line 9 (a) Check (ii)

(b),(c), & (d) Not applicable

(e) & (f) No

Capital Gains and Losses: The company sold all 1,00 shares of Metro Corporation stock on July 2, 2019 for $1.44 million. The transaction was not reported on Form 1099-B.

Fixed Assets and Depreciation:

The company acquired the equipment on January 2, 2018 and placed it in service on that date. The equipment, which originally cost $1.6 million, is MACRS seven-year property. The company did not elect Sec. 179 expensing in the acquisition year and elected out of bonus depreciation. The company claimed the following depreciation on this property:

Year Book & Reg Tax Deprec.

2018 $ 228,640

2019 391,840

On March 1, 2019 the company acquired and placed in service additional equipment costing $700,000. The company made the Sec.179 expensing election for the entire cost of this new equipment. No depreciation or expensing is reported on Schedule A.

The balance sheet is follows:

January 1, 2019 December 31, 2019

Account Debit Credit Debit Credit Cash

$ 958,900 $ 1,062,760

Accounts Receivable 756,000 840,000

Inventory 1,400,000 1,680,000

Investment in municpal bonds 50,000 50,000

Investment in corporate stock 480,000 -

Equipment 1,600,000 2,300,000

Accum. Depreciation - Equipment 228,640 1,320,480

Accounts payable 140,000 182,000

Notes payable (short-term) 700,000 140,000

Accrued payroll taxes 4,900 6,860

Capital account balances:

Diana Banner (30%) 1,251,408 1,285,026

Bruce Parker (70%) 2,919,952 2,998,394

Total $ 5,244,900 $ 5,244,900 $ 5,932,760 $ 5,932,760

The book income statement is as follows:

Sales $ 7,000,000

Returns (350,000)

Net sales $ 6,650,000

Beginning inventory $ 1,400,000

Purchases 2,800,000

Ending Inventory (1,680,000)

Cost of goods sold $ (2,520,000)

Gross profit $ 4,130,000

Expenses:

Depreciation $ 1,091,840

Repairs 45,500

Insurance 49,000

Guaranteed payment (Banner) 200,000

Other salaries 980,000

Travel 28,000

Utilities 84,000

Rent Expense 210,000

Advertising 42,000

Legal and accounting fees 70,000

Charitable contributions 56,000

Payroll taxes 98,000

Business interest expense 33,600

Investment Expenses 7,200

Investment Interst Expense 4,200

Business Meals 7,000

Total expenses $ (3,006,340)

Interest on municpal bonds 2,000

Net gain on stock sales 960,000

Dividend income 26,400

Net income $ 2,112,060

Other information:

The company paid Banner a $200,000 guaranteed payment for her management services.

The company made a $56,000 cash contribution to the Boys and Girls Club on December 1 of the current year.

During the current year, the company made a $600,000 cash distribution to Banner and a $1.4 million cash distribution to Parker.

The municipal bonds, acquired in 2018, are general revenue bonds, not privateequity bonds. Assume that no expenses of the company are allocable to the taxexempt interest generated from the municipal bonds.

Use book numbers for Schedule L, M-2, and Line 1 of Schedule M-1. Also use book numbers for Item L of Schedule K-1, and check the box for Sec. 704(c) book.

The partners share liabilities, which are recourse, in the same proportion as their ownership percentages.

Required: 1.) Prepare the 2019 partnership tax return, include the additional schedules and forms as needed. Be sure to prepare a Schedule K-1 for each partner. 2.) Prepare a schedule for each partners basis in his or her partnership interest. At January 1, 2019 Banners basis was $1,504,878 and Parkers was $3,127,382.