The KL Partnership is owned equally by Kayla and Lisa. Kaylas basis is $20,000 at the beginning of the tax year. Lisas basis is $16,000 at the beginning of the year. Assume partnership debt did not change from the beginning to the end of the tax year. KL reported the following income and expenses for the current tax year: Sales revenue ..................... $150,000 Cost of sales ...................... 80,000 Distribution to Lisa .................... 15,000 Depreciation expense................... 20,000 Utilities ........................ 14,000 Rent expense ...................... 18,000 Long-term capital gain .................. 6,000 Payment to Mercy Hospital for Kaylas medical expenses ..... 12,000 a. Determine the ordinary partnership income and separately stated items for the partnership. b. Calculate Kaylas basis in her partnership interest at the end of the tax year. What items should Kayla report on her Federal income tax return? c. Calculate Lisas basis in her partnership interest at the end of the tax year. What items should Lisa report on her Federal income tax return?

d. Prepare schedule M-1 and M-2 Assume that the beginning balance of the partners capital account equals the beginning basis for the partners.