Tax Project Alberts Family Pet Store Partnership Facts Rex and Kelly are partners in Albert Family Pet Store Partnership. With the tax deadline looming, Rex and Kelly would like to hire you to prepare their partnerships tax return for the 2020 tax year. As this is the second year of the pet store partnership, Rex and Kelly are somewhat familiar with the documents you will want to review as enter into this engagement. Below is a summary of the information that Rex and Kelly have prepared in advance. These documents are attached for your review. o Partnership Agreement (for Alberts Family Pet Store) o Loan Amortization Schedule o Financial Statements for 2019 (prior year) and 2020 (current year), including: Income Statement Statement of Partners Capital Balance Sheet o Invoice (copy) of 2020 fixed asset purchase (a computer) Other Information At the time of the opening of Alberts Family Pet Store, Store Fixtures totaling $70,000 were placed into service. Depreciation for the Store Fixtures is as follows: o For book purposes assume a 7 year life, straight line method, with no salvage value. o For tax purposes assume a 7 year life, MACRS method, with no salvage value. As eligible, Rex and Kelly would like to maximize any deductions allowable pursuant to Internal Revenue Code Section 168(k) Alberts Family Pet Store maintains separate book and tax depreciation records. Although the methods of depreciation may differ (straight-line versus MACRS, respectively), useful lives are derived from IRS Publication 946 and held constant for book and tax purposes. Required: Prepare an adjusted trial balance (for book purposes) for the 2020 year. This should include, but is not limited to, adjustments for book depreciation, current versus long-term notes payable, updating of statement of partners capital, etc. Prepare and record any needed federal tax adjustments/entries for the 2020 tax year (within the trial balance workpaper). Prepare the 2020 US Return of Partnership Income (Form 1065) including all needed supporting forms (e.g., Form 4562, K-1s, etc.). ALBERTS FAMILY PET STORE PARTNERSHIP AGREEMENT THIS PARTNERSHIP AGREEMENT is made on January 1, 2019. BETWEEN. Partner Name Address Rex Albert 22 Pretend Street | Pretend, FL 12345 Kelly Albert 33 Pretend Street | Pretend, FL 12345 NAME AND BUSINESS. The parties hereby form a partnership under the name Alberts Family Pet Store which will operate a store front location that will engage in the selling of pet supplies. The principal office of the business shall be located at 999 Pretend Street | Pretend, FL 12345. TERM. The partnership shall begin on January 1, 2019, and shall continue until agreed by unanimous consent of the Partners. INITIAL CAPITAL CONTRIBUTIONS. Each of the Partners has contributed to the capital of the Partnership, in cash, as listed below. All partners will contribute their respective Capital Contributions fully and on time. Partner Name Agreed Value Rex Albert $100,000 Kelly Albert 30,000 Total $130,000 COMPENSATION FOR SERVICES RENDERED: As of the signing of this Partnership Agreement, the Partners agree that Kelly Albert will be paid the following compensation for services rendered over the first two years of the Partnerships existence (2019 and 2020), as listed. Additional compensation for services rendered, by both Partners, as from time to time may be agreed upon by unanimous consent of the Partners. Kelly Albert - Compensation 2019 $10,000 2020 $50,000 INTEREST ON CAPITAL: Each partner will be paid on an annual basis an amount of interest based on their initial capital contributions (as shown above). The rate used for interest payments will be 2%. In the event of future drawings that are deemed a return of initial capital contributions the base number used for the calculation of interest will be reduced. As of the signing of this Partnership Agreement, the interest amounts to be paid are as follows. Partner Name Agreed Value Rex Albert $2,000 Kelly Albert 600 Total $2,600 PROFIT AND LOSS ALLOCATION. Subject to the other provisions of this Agreement (Compensation and Interest on Capital), the net profits and losses of the Partnership, for both accounting and tax purposes, will accrue to and be borne by the Partners according to the following schedule. Any and all profit and loss allocation should be performed after the allocation of compensation for services rendered (if any): Partner Name Profit and Loss % Rex Albert 75% Kelly Albert 25% MANAGEMENT DUTIES AND RESTRICTIONS. The partners shall have equal rights in the management of the partnership business, and each partner shall devote his entire time to the conduct of the business. Without the consent of the other partner neither partner shall on behalf of the partnership borrow or lend money, or make, deliver, or accept any commercial paper, or execute any mortgage, security agreement, bond, or lease, or purchase or contract to purchase, or sell or contract to sell any property for or of the partnership other than the type of property bought and sold in the regular course of its business. BANKING. All funds of the partnership shall be deposited in its name in such checking account or accounts as shall be designated by the partners. All withdrawals are to be made upon checks signed by either partner. BOOKS. The partnership books shall be maintained at the principal office of the partnership, and each partner shall at all times have access thereto. The books shall be kept on a calendar year (ending on December 31st of each year). VOLUNTARY TERMINATION. The partnership may be dissolved at any time by agreement of the partners, in which event the partners shall proceed with reasonable promptness to liquidate the business of the partnership. The partnership name shall be sold with the other assets of the business. The assets of the partnership business shall be used and distributed in the following order: (a) to pay or provide for the payment of all partnership liabilities and liquidating expenses and obligations; (b) to equalize the income accounts of the partners; (c) to discharge the balance of the income accounts of the partners; (d) to equalize the capital accounts of the partners; and (e) to discharge the balance of the capital accounts of the partners. DEATH. Upon the death of either partner, the surviving partner shall have the right either to purchase the interest of the decedent in the partnership or to terminate and liquidate the partnership business. If the surviving partner elects to purchase the decedent's interest, he shall serve notice in writing of such election, within three months after the death of the decedent, upon the executor or administrator of the decedent, or, if at the time of such election no legal representative has been appointed, upon any one of the known legal heirs of the decedent at the last-known address of such heir. (a) If the surviving partner elects to purchase the interest of the decedent in the partnership, the purchase price shall be equal to the decedent's capital account as at the date of his death plus the decedent's income account as at the end of the prior fiscal year, increased by his share of partnership profits or decreased by his share of partnership losses for the period from the beginning of the fiscal year in which his death occurred until the end of the calendar month in which his death occurred, and decreased by withdrawals charged to his income account during such period. No allowance shall be made for goodwill, trade name, patents, or other intangible assets, except as those assets have been reflected on the partnership books immediately prior to the decedent's death; but the survivor shall nevertheless be entitled to use the trade name of the partnership. (b) Except as herein otherwise stated, the procedure as to liquidation and distribution of the assets of the partnership business shall be the same as stated in paragraph 10 with reference to voluntary termination. ARBITRATION. Any controversy or claim arising out of or relating to this Agreement, or the breach hereof, shall be settled by arbitration in accordance with the rules, then obtaining, of the American Arbitration Association, and judgment upon the award rendered may be entered in any court having jurisdiction thereof. Executed this 1st day of January, 2019. Rex Albert Printed: Rex Albert Kelly Albert Printed: Kelly Albert.