Reference no: EM13543876
FACTS
Valerie Lawson and Clara Norman are the sole equal partners in the general partnership of Lawson And Norman Enterprises. The partnership, which is a retail office supplies and stationery store, began its operations on January 2, 1985. For Federal Income Tax purposes, the partnership is a calendar year taxpayer and uses the Accrual Method Of Accounting. Its Employee Identification Number is 76-1234567, address is 4369 Robbie Lane Houston, Texas 77026-3915, telephone number is (281) 479-8132, fax number is (281) 536-1908. The business activity code for the partnership is 453210. Both partners devote one hundred percent (100%) of their time to the business of the partnership and are equal partners of the partnership in every respect (ie. profit sharing ratio, loss sharing ratio, ownership, etc.). Valerie Lawson, who is the designated Tax Matters Partner for the partnership, has social security number of 234-56-7890, her address is 8124 Annette Court Houston, Texas 77031-9475 and her telephone number is (832) 246-8015. Clara Norman has social security number of 890-12-3456, her address is 2716 Nanette Drive Houston, Texas 77061-3459 and her telephone number is (832) 623-5097.
FINANCIAL INFORMATION
During the year of 2013, the Lawson And Norman Enterprises reported the following Income and Expenses (including necessary accruals) for Financial Accounting purposes:
Gross Receipts $1,482,000
Sales Returns And Allowances 109,000
Purchases 510,000
Dividends Received From Stock (Not Qualified Dividends)
Investments In Less Than twenty percent (20%)
Owned United States (U. S.) Corporation 80,000
Interest Income:
Taxable Interest 18,000
Tax-Exempt Interest 7,200
Guaranteed Payments: Valerie Lawson 75,000
Clara Norman 75,000
Salaries - Employees 108,000
Repairs And Maintenance 19,300
Rent Expense - Office 84,000
Rent Expense - Equipment 15,500
Payroll Taxes (Federal And State) 19,600
Interest Expense (Trade Or Business Interest) 25,200
Advertising Expense 44,500
Charitable Contributions ("50%" Charities) 48,000
Legal And Professional Fees 28,800
Depreciation Expense 50,000 *
Utilities Expense 27,300
Employee's Health Insurance Premiums 14,200
Entertainment Of Clients 5,000
Partners' Life Insurance Premiums 14,400 **
* - Based upon Straight-Line Depreciation, a useful life of five (5) years and no salvage value for all assets (see specific assets below).
** - Lawson And Norman Enterprises Is The Designated Beneficiary.
On January 1, 2013, the partner's Capital Accounts equaled $157,200 each. No additional capital contributions were made during the year of 2013 and each partner made a total of $140,000 (all cash) withdrawals throughout the course of the year of 2013.
The Lawson And Norman Enterprises owns the following depreciable assets:
ASSET DESCRIPTION DATE ACQUIRED ORIGINAL COST
Automobile - 2012 Lexus 460 April 1, 2012 $ 50,000
(Five-year Property)
Automobile - 2012 Cadillac Seville April 1, 2012 50,000
(Five-year Property)
Furniture And Fixtures May 1, 2011 150,000
(Seven-year Property)
Each automobile was used a total of 18,000 miles during the year of 2013 all which were business miles. The automobiles were not available for personal use during off-duty hours and were used solely by Valerie Lawson and Clara Norman, who both have another vehicle available for personal use. For Federal Income Tax purposes, all of these assets are depreciated using the Modified Accelerated Cost Recovery System (MACRS). Section 179 Deduction was not elected in regards to any of these assets nor was Straight-Line Depreciation used.
BALANCE SHEETS
The Balance Sheets (Financial Accounting) for the Lawson And Norman Enterprises at the beginning and ending of the year of 2013 are as follows:
ASSETS January 1 December 31
Cash $ 36,000 $ 84,000
Trade Notes And Accounts Receivable 96,000 90,000
Inventory (Valued At Cost) * 120,000 100,000
Marketable Securities - Long Term 140,000 250,000
Depreciable Assets (And Land) 260,000 ** 260,000 **
Less: Accumulated Depreciation (65,000) (115,000)
Other Assets (Deposits) 12,000 12,000
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TOTAL ASSETS $ 599,000 $ 681,000
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LIABILITIES AND PARTNERS' CAPITAL
Accounts Payable (Non Recourse) $ 96,000 $ 116,200
Notes Payable - Short Term (Recourse) 24,600 24,000
Notes Payable - Long Term (Recourse) 164,000 212,000
Partner's Capital (Total) 314,400 328,800
TOTAL LIABILITIES AND ------------ ------------
PARTNERS' CAPITAL $ 599,000 $ 681,000
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* - The rules of Section 263A of the Internal Revenue Code do not apply to the partnership.
** - Includes $10,000 allocated to Land.
OTHER INFORMATION
Both partners are United States citizens (and individuals) and the partnership is not a partner in any other partnership.
The partnership is not subject to the consolidated audit procedures of Sections 6221 through 6233 of the Internal Revenue Code and the partnership does not meet all three (3) requirements shown in the instructions (Schedule B) for Question 5. In addition, the partnership is not a publicly traded partnership as defined in Section 469(k)(2) of the Internal Revenue Code and the partnership has not filed nor is required to file Form 8264 -
Application For Registration Of A Tax Shelter. During the year of 2013, Lawson And Norman Enterprises had no interest in or signature or other authority over any financial account in a foreign country. Furthermore, during the year of 2013, the partnership did not receive a distribution from nor was the partnership a grantor of, or transferor to, a foreign trust. Finally, there were no distributions of property or transfer of a partnership interest during the year of 2013.
REQUIRED
Prepare the Partnership Return for the Lawson And Norman Enterprises for the year of 2013 and Schedule K-1 for both partners. The following Forms are needed to complete the Return:
Form 1065
Form 1125-A
Schedule K-1 (Form 1065) (2)
Form 4562
The Income Tax Return