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Tax Subject PS3 - U.S. Return of Partnership Income

A partnership is the relationship existing between two or more persons who join to carry on a trade or business. There are many rules governing the the taxation partnerships which are intended to permit taxpayers to conduct joint business and investment activities without the risks of double taxation as with corporations.

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Student Instructions:

Print this page, work on the questions and then submit test by mailing the answer sheet or by completing quiz online.

Instructions to submit quiz online successfully: Step-by-Step check list

Answer Sheet Quiz Online

Most forms are in Adobe Acrobat PDF format. You will need Adobe Reader to view and print these forms. If you do not already have Adobe Reader installed on your computer, you may download the software for free.

Material needed to complete this assignment:

Answer the following questions as accurate as possible. Please pay attention to your answers as they will appear again on the "Quiz Online" part of this topic. Prepare your answers for these questions and then click on "Assignment" online in step 3 above when you are ready to submit them.

Partnership Return filing situation 1:

The Han's Oriental Food Store (EIN 13-4567890) is a partnership between Jeff Su (SSN 614-56-7890) and Linda Wu (SSN 592-34-5678) that specialize in oriental food items. The store is located 1633 Main Street, Billings, MT 59105.

Information for Jeff Su:

Lives at 1212 Grand Ave., Billings, MT 59102.
Jeff is single and has one child John Su (SSN 611-23-4567 D.O.B. 2/13/2010) living at home with him and the boy's mom, Jeff's girlfriend, helps him take care of him. All support for the boy comes from Jeff. Jeff paid $4,000 in estimated payments and all payments were made on time every quarter.

Information for Linda Wu:

Lives at 1302 N. 24th St. W, Billings, MT 59102.

Linda is single and has no dependents. Linda made $6,350 in estimated payments and payments were made on time every quarter.

According to the partnership agreement Linda Wu has a 55% capital and profits interest and Jeff Su has the remaining 45% capital and profits interest. Both Linda Wu and Jeff Su are active in the business. They have two part time employees that earn minimum wage. The partnership has been in operation with the same owners since January 1, 2009.

The partnership values its inventory using the accrual method and did not have any changes in methods in the current year. Purchases for the year were $151,718.

You will need the following financial statements to complete this partnership return.

	Han's Oriental Food Store
	Income Statement
	Year Ended December 31, 2012
Sales			$260,300
Expenses:
Cost of Goods Sold		151,718
Salaries and Wages		11,000
Guarantee Payments
Jeff Su	17,000
Linda Wu	17,000	34,000
Advertising		13,400
Freight out		3,250
Depreciation		6,045
Taxes and Licenses		3,500
Rent		5,300
Interest Expense		850
Property Taxes		2,000
Total Expenses			231,063
Net Income (Loss)			$29,237
			======

	Han's Oriental Food Store
	Balance Sheet
	As of December 31, 2012
ASSETS
Current Assets:
Cash				$60,003
Short-term investments/
marketable securities				$6,000
Accounts receivable, net				7,000
Inventory				10,000
Office supplies on hand				1,000
Total Current Assets				84,003
Long-Lived Assets:
Long-term investments			10,000
Land			39,000
Building		86,000
Less accum. depreciation		(6,526)	79,474
Machinery & equipment		20,000
Less accum. depreciation		(14,240)	5,760
Total Long-lived Assets				134,234
Total Assets				$218,237
				=====
LIABILITIES
Current Liabilities:
Accounts Payable				4,200
Notes Payable				15,000
Interest Payable				1,000
Wages Payable				800
Total Current Liabilities				21,000
Long-Tem Liabilities:
Mortgage Payable			30,000
Bonds Payable			50,000
Total Long-Term Liabilities				80,000
Total Liabilities				101,000
PARTNERS' CAPITAL
Jeff Su, Capital			53,157
Linda Wu, Capital			64,080
Total Partners' Capital				117,237
Total Liabilities & Owner's Equity				$218,237
				======

	Han's Oriental Food Store
	Balance Sheet
	As of December 31, 2011
ASSETS
Current Assets:
Cash				$24,721
Short-term investments/
marketable securities				$6,000
Accounts receivable, net				7,000
Inventory				10,000
Office supplies on hand				1,000
Total Current Assets				48,721
Long-Lived Assets:
Long-term investments			10,000
Land			39,000
Building		86,000
Less accum. depreciation		(4,321)	81,679
Machinery & equipment		20,000
Less accum. depreciation		(10,400)	9,600
Total Long-lived Assets				140,279
Total Assets				189,000
				=====
LIABILITIES
Current Liabilities:
Accounts Payable				4,200
Notes Payable				15,000
Interest Payable				1,000
Wages Payable				800
Total Current Liabilities				21,000
Long-Tem Liabilities:
Mortgage Payable			30,000
Bonds Payable			50,000
Total Long-Term Liabilities				80,000
Total Liabilities				101,000
PARTNERS' CAPITAL
Jeff Su, Capital			40,000
Linda Wu, Capital			48,000
Total Partners' Capital				88,000
Total Liabilities & Owner's Equity				$189,000
				======

Partnership Return filing situation 2:

The High-Five Custom Tailors Partnership (employer identification 12-3456789) was formed ten years ago January 1, 2002 as a general partnership to custom tailor clothing. High-Five Custom Tailors is located at 1550 Larimer Street, Denver CO 80202.

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. The partnership is not subject to partnership audit procedures. The partnership has not foreign partners, no foreign transactions, not interest 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.

Alejandro Campbell (SSN 692-23-9110) manages the business and has a 40% capital and profits interest. His address is 700 Colorado Blvd, Denver, CO 80206. Alejandro is married to Patricia Garcia (SSN 602-34-5678) and they have 3 children. Patricia does not work because she takes care of the children. Alexander Campbell (DOB 1/23/2005 SSN 625-67-8910), Christopher Campbell (DOB 10/01/2010 SSN 612-34-6789) and Paula Campbel (DOB 12/13/2009 SSN 630-12-3456) lived with the couple all year. Alejandro is the sole provider for his wife and his two children. Their Mortgage interest for the year was $16,204 and real estate property taxes was $3,354. Alejandro made estimated payments as scheduled for a total of $16,000.

Mansour Doan (DOB 8/24/1946 SSN 505-30-3902) owns the remaining 60% interest but is not active in the business. His address is 98 Wadsworth Blvd, Atlanta, GA 30308. Mansour's wife died 9/10/2009 and has not remarried. Mansour received $13,150 Social Security benefits reported on box 5 of Form SSA-1099. Mr. Doan paid $4,006 in real estate property taxes. He also paid estimated payments on time every three months for a total of $24,940.

Prepare a current year partnership tax return for High-Five Custom Tailors and personal tax returns for the partners. Use the following financial statements.

	High-Five Custom Tailors
	Income Statement
	Year Ended December 31, 2012
Sales			$950,000
Returns and allowances			(8,085)
			$941,950
Beginning inventory (FIFO method)		80,871
Purchases		252,255
Labor		242,553
Supplies		16,979
Other costs		4,851
Goods available for sale		$597,509
Ending inventory		(59,021)	(538,488)
Gross Profit			$403,462
Salaries for employees	other than partners (W-2 wages)	$30,000
Guaranteed payment for Alejandro		45,000
Utilities expense		36,428
Depreciation		12,612
Automobile expense		12,085
Office supplies expense		4,420
Advertising expense		34,362
Bad Debt expense		2,100
Interest expense (all business-related)		18,191
Rent Expense		7,400
Travel expense	(meals cost is $4,050 of this amount)	11,020
Repairs and maintenance expense		27,611
Accounting and legal expense		3,600
Charitable contributions		16,400
Payroll taxes		3,047
Other taxes (all business-related)		1,400
Total Expenses			265,676

Net income			$137,786
			=======

	High-Five Custom Tailors
	Balance Sheet
	As of December 31, 2012
ASSETS:
Cash			$82,296
Accounts receivable			150,100
Inventories			59,021
Building and equipment			465,000
Minus: Accumulated depr.			(173,100)
Land			185,000
Total assets			$768,317
			========
LIABILITIES and equities:
Accounts payable			$46,000
Sales taxes payable			6,560
Mortgage & notes payable	(current maturities)		52,000
Long-term debt			275,000
Capital:
Alejandro		155,502
Mansour		233,255	388,757
Total liabilities and equities			$768,317
			========

	High-Five Custom Tailors
	Balance Sheet
	As of December 31, 2011
ASSETS:
Cash			$10,000
Accounts receivable			55,184
Inventories			80,871
Building and equipment			374,600
Minus: Accumulated depr.			(160,484)
Land			185,000
Total assets			$545,171
			=======
LIABILITIES and equities:
Accounts payable			$35,000
Sales taxes payable			5,200
Mortgage & notes payable	(current maturities)		44,000
Long-term debt			210,000
Capital:
Alejandro		100,388
Mansour		150,583	250,971
Total liabilities and equities			$545,171
			=======

1. Look at the Form 1065 you prepared for Han's Oriental Food Store Partnership. What is the amount on Line 8?

A. $260,300
B. $108,582
C. $225,000
D. None of the above

2. Look at the Form 1065 you prepared for Han's Oriental Food Store Partnership. What is the amount on Line 16a?

A. $6,045
B. $5,000
C. $2,000
D. None of the above

3. Look at the Form 1065 you prepared for Han's Oriental Food Store Partnership. What is the amount on Line 20?

A. $50,000
B. $16,650
C. $25,000
D. None of the above

4. Look at the Form 1065 you prepared for Han's Oriental Food Store Partnership. What is the amount on Line 22?

A. $50,000
B. $27,000
C. $29,237
D. None of the above

5. Look at the Form 1065 Schedule K you prepared for Han's Oriental Food Store Partnership. What is the amount on Line 1?

A. $50,000
B. $29,237
C. $27,000
D. None of the above

6. Look at the Form 1065 Schedule K you prepared for Han's Oriental Food Store Partnership. What is the amount on Line 4?

A. $34,000
B. $27,000
C. $25,000
D. None of the above

7. Look at the Form 1065 Schedule K you prepared for Han's Oriental Food Store Partnership. What is the amount on Line 14a?

A. $50,000
B. $27,000
C. $63,237
D. None of the above

8. Look at the Form 1065 Analysis of Net Income (Loss) you prepared for Han's Oriental Food Store Partnership. What is the amount on Line 1?

A. $63,237
B. $117,237
C. $218,237
D. None of the above

9. Look at the Form 1065 Schedule L you prepared for Han's Oriental Food Store Partnership. What is the amount on Line 14b?