Partnership Tax Return Preparation Problem – Walters­Downs Partnership

Partnership Tax Return Preparation Problem – Walters­Downs Partnership

Question
	
Entity Taxation
Fall 2013
Partnership Tax Return Preparation Problem
The Walters­Downs Partnership was formed 10 years ago as a general partnership totailor women’s clothing. It is located at 2501 N Blackwelder, Oklahoma City,
Oklahoma, 73105. Theresa Walters manages the business and has a 40% capital andprofits interest. Her address is 500 Park Place, Edmond, OK 73034. Ann Downs owns the remaining 60% interest, but is not active in the business. Her address is 612 Timber
Lane, Edmond, OK 73034. The partnership values its inventory using the cost method and has not changed themethod. The partnership uses accrual accounting. The partnership has no foreign
interests and is not a tax shelter nor a publicly traded partnership. There have been nochanges in ownership.
The partnership made cash distributions to Walters of $155,050 and to Downs of$232,576 on December 30 of the current year. The partnership’s qualified domestic
production activities income is $600,000. Financial statements appear below.
Prepare a 2012 partnership tax return for Walters­Downs. 
Note: Include all applicable forms. That is, prepare the 1065 plus all other applicable
forms.

Income Statement
Sales
Returns

 

Beginning Inventory (FIFO) $200,050
Purchases
 624,000
Labor
 600,000
Supplies
 42,000
Other costs
 12,000
Ending Inventory
 (146,000)
Cost of Goods Sold
Gross Profit
Salaries (other than partners)
 51,000
Guaranteed payment for Walters
 85,000
Utilities 
 46,428
Depreciation (MACRS $74,311)
 49,782
Automobile expense
 12,085
Office supplies
 4,420
Advertising
 85,000
Bad debt expense
 2,100
Interest expense (all business related) 45,000
Rent expense
 7,400
Travel expense (includes meals $4,050) 11,020
Repairs and maintenance
 68,300
Accounting and legal
 3,600
Charitable contributions
 16,400

$2,357,000
 (20,000)

(1,332,050)
$1,004,950

Payroll taxes
 5,180
Other taxes (all business related)
 1,400
Total expenses 494,115
Operating Profit
 510,835
Other income and losses
Gain on sale of AB stock1
 18,000
2
Loss on sale of CD stock
 (26,075)
3
Section 1231 gain on land
 5,050
Interest on US treasury bills
 2,000
Dividends from 15% owned domestic corporation 11,000 9,975
NET INCOME
 $520,810

Balance Sheet
January 1
Cash
Accounts receivable
Inventories
Marketable securities
Building and equipment
Accumulated depreciation
Land
Total assets

Accounts payable
Accrued salaries payable 
Payroll taxes payable
1

December 31

$ 10,000
$ 40,000
 72,600

 150,100
 200,050 146,000
 220,000
 260,000
 374,600
 465,000
 (160,484)
 (173,100)
 185,000
 240,000
$ 901,766

 $ 1,128,000

$ 35,000
 14,000

 3,416

$ 46,000
 18,000
7,106

 AB stock purchased as investment two years ago on December 1 for $40,000 and sold
on June 14 of current year for $58,000.
2
 CD stock purchased as investment on February 1 of current year for $100,000 and sold
on August 1 for $73,925.
3
 Land was purchased for parking lot. It was purchased 4 years ago on March 17 for
$30,000 and sold on August 15 of current year for $35,050.

Sales taxes payable
Notes payable (current)
Long­term debt
Capital:
Walters
Downs

 5,200
 44,000
 210,000

6,560
 52,000
 275,000

 236,060
 354,090

 289,334
 434,000

Total liabilities and equity

 $ 901,766

$ 1,128,000