Question
The Dapper-Dons Partnership was formed ten years ago as a general partnership to custom tailor mens clothing. Dapper-Dons is located at 123 Flamingo Drive in
The Dapper-Dons Partnership was formed ten years ago as a general partnership to custom
tailor mens clothing. Dapper-Dons is located at 123 Flamingo Drive in City, ST,
54321. Bob Dapper manages the business and has a 40% capital and profits interest. His
address is 709 Brumby Way, City, ST, 54321. Jeremy Dons owns the remaining 60%
interest but is not active in the business. His address is 807 Ninth Avenue, City, ST,
54321. The partnership values its inventory using the cost method and did not change
the method used during the current year. The partnership uses the accrual method of
accounting. Because of its simplicity, the partnership is not subject to the partnership
audit procedures. The partnership has no foreign partners, no foreign transactions, no
interests in foreign trusts, and no foreign financial accounts. This partnership is neither a
tax shelter nor a publicly traded partnership. No changes in ownership of partnership
interests occurred during the current year. The partnership made cash distributions of
$155,050 and $232,576 to Dapper and Dons, respectively, on December 30 of the current
year. It made no other property distributions. Financial statements for the current
year are presented in Tables C:9-1 and C:9-2. Assume that Dapper-Dons business qualifies
as a U.S. production activity and that its qualified production activities income is
$600,000. Dapper-Dons, being an eligible small pass-through partnership, uses the small
business simplified overall method for reporting these activities (see discussion for Line
13d of Schedules K and K-1 in the Form 1065 instructions).
Prepare a current year partnership tax return for Dapper-Dons Partnership.
TABLE C:9-1
Dapper-Dons Partnership Income Statement for the 12 Months Ending December
31 of the Current Year (Problem C:9-57)
Sales $2,357,000
Returns and allowances ($20,000)
$2,337,000
Beginning inventory (FIFO method) $ 200,050
Purchases 624,000
Labor 600,000
Supplies 42,000
Other costsa 12,000
Goods available for sale 1,478,050
Ending inventoryb (146,000) (1,332,050)
Gross profit $ 1,004,950
Salaries for employees other than partners (W-2 wages) $51,000
Guaranteed payment for Dapper 85,000
Utilities expense 46,428
Depreciation (MACRS depreciation is $74,311)c 49,782
Automobile expense 12,085
Office supplies expense 4,420
Advertising expense 85,000
Bad debt expense 2,100
Interest expense (all trade- or business-related) 45,000
Rent expense 7,400
Travel expense (meals cost $4,050 of this amount) 11,020
Repairs and maintenance expense 68,300
Accounting and legal expense 3,600
Charitable contributionsd 16,400
Payroll taxes 5,180
Other taxes (all trade- or business-related) 1,400
Total expenses 494,115
Operating profit $ 510,835
Other income and losses:
Gain on sale of AB stocke $ 18,000
Loss on sale of CD stockf (26,075)
Sec. 1231 gain on sale of landg 5,050
Interest on U.S. Treasury bills for entire year ($80,000 face
amount) 2,000
Dividends from 15%-owned domestic corporation 11,000 9,975
Net income 520,810
a Additional Sec. 263A costs of $7,000 for the current year are included in other costs.
b Ending inventory includes the appropriate Sec. 263A costs, and no further adjustment is needed to properly state cost
of sales and inventories for tax purposes.
c The partnership reports a $10,000 positive AMT adjustment for property placed in service after 1986. Dapper-Dons
acquired and placed in service $40,000 of rehabilitation expenditures for a certified historical property this year. The
appropriate MACRS depreciation on the rehabilitation expenditures already is included in the MACRS depreciation total.
d The partnership made all contributions in cash to qualifying charities.
e The partnership purchased the AB stock as an investment two years ago on December 1 for $40,000 and sold it on
June 14 of the current year for $58,000.
f The partnership purchased the CD stock as an investment on February 15 of the current year for $100,000 and sold it
on August 1 for $73,925.
g The partnership use the land as a parking lot for the business. The partnership purchased the land four years ago on
March 17 for $30,000 and sold it on August 15 of the current year for $35,050.
TABLE C:9-2
Dapper-Dons Partnership Balance Sheet for January 1 and December 31 of the
Current Year (Problem C:9-57)
Balance Balance
January 1 December 31
Assets:
Cash $ 10,000 $ 40,000
Accounts receivable 72,600 150,100
Inventories 200,050 146,000
Marketable securitiesa 220,000 260,000
Building and equipment 374,600 465,000
Minus: Accumulated depreciation (160,484) (173,100)
Land 185,000 240,000
Total assets 901,766 1,128,000
Liabilities and equities:
Accounts payable $ 35,000 $ 46,000
Accrued salaries payable 14,000 18,000
Payroll taxes payable 3,416 7,106
Sales taxes payable 5,200 6,560
Mortgage and notes payable (current maturities) 44,000 52,000
Long-term debt 210,000 275,000
Capital:
Dapper 236,060 289,334
Dons 354,090 434,000
Total liabilities and equities 901,766 1,128,000
a Short-term investment.
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