The Dapper-Dons Partnership was formed ten years ago as a general partnership to custom tailor men’s 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 partner-ship 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 partner-ship 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 (2015 for this problem) 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 $2,357,000Returns and allowances (20,000) $2,337,000Beginning inventory (FIFO method)$ 200,050 Purchases624,000 Labor600,000 Supplies42,000 Other costs a 12,000 Goods available for sale$1,478,050 Ending inventory b (146,000) (1,332,050)Gross profit $ 1,004,950Salaries for employees other than partners (W-2 wages)$51,000 Guaranteed payment for Dapper85,000 Utilities expense46,428 Depreciation (MACRS depreciation is $74,311) c 49,782 Automobile expense12,085 Office supplies expense4,420 Advertising expense85,000 Bad debt expense2,100 Interest expense (all trade- or business-related)45,000 Rent expense7,400 Travel expense (meals cost $4,050 of this amount)11,020 Repairs and maintenance expense68,300 Accounting and legal expense3,600 Charitable contributions d 16,400 Payroll taxes5,180 Other taxes (all trade- or business-related)1,400 Total expenses 494,115Operating profit $ 510,835
Other income and losses: Gain on sale of AB stock e $ 18,000 Loss on sale of CD stock f (26,075) Sec. 1231 gain on sale of land g 5,050 Interest on U.S. Treasury bills for entire year ($80,000 face amount) 2,000 Dividends from 15%-owned domestic corporation11,000 9,975Net 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 used 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 $35,050.
TABLE C:9-2 Dapper-Dons Partnership Balance Sheet for January 1 and December 31 of the Current Year (Problem C:9-57) Balance January 1Balance December 31 Assets: Cash$ 10,000$ 40,000Accounts receivable72,600150,100Inventories200,050146,000Marketable securities a 220,000260,000Building and equipment374,600465,000Minus: Accumulated depreciation(160,484)(173,100)Land 185,000 240,000Total assets$901,766$1,128,000Liabilities and equities: Accounts payable$ 35,000$ 46,000Accrued salaries payable14,00018,000Payroll taxes payable3,4167,106Sales taxes payable5,2006,560Mortgage and notes payable (current maturities)44,00052,000Long-term debt210,000275,000Capital: Dapper236,060289,334 Dons 354,090 434,000 Total liabilities and equities$901,766$1,128,000 a Short-term investment.