Accounts: Balance Sheet and Dapper-dons Partnership

C9-57 The Dapper-Dons Partnership (employer identification no. 89-3456798) was formed ten years ago as a general partnership to custom tailor men’s clothing. Dapper-Dons is located at 123 Flamingo Drive in Miami, Florida 33131. Bob Dapper (Social Security No. 654-32-1098) manages the business and has a 40% capital and profits interest. His address is 709 Brumby Way, Miami, Florida 33131. Jeremy Dons (Social Security No. 354-12-6531) owns the remaining 60% interest but is not active in the business. His address is 807 9th Avenue, North Miami, Florida 33134. 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. Because of its simplicity, the partnership is not subject to the partnership audit procedures.

The partnership 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 C9-1 and C9-2. Assume that Dapper-Dons’ business qualifies as a U.S. production activity and that its qualified production activities income is $600,000. The 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 partnership tax return for Dapper-Dons Partnership. ISBN: 0-536-35834-6
Prentice Hall’s Federal Taxation 2007: Comprehensive, by Thomas R. Pope, Kenneth E. Anderson, and John L. Kramer, eds. Published by Prentice Hall. Copyright © 2007 by Pearson Education, Inc.
9-46 Corporations ▼ Chapter 9
_ TABLE C9-1
Dapper-Dons Partnership Income Statement for the 12 Months Ending December 31 of the Current Year (Problem C9-57)
Sales $2,350,000
Returns and allowances )
$2,330,000

Beginning inventory (FIFO method) $ 200,050
Purchases 624,000
Labor 600,000
Supplies 42,000
Other costsa
Goods available for sale $1,478,050
Ending inventoryb ) )
Gross profit $ 997,950
Salaries for employees other than partners (W-2 wages) $51,000 Guaranteed payment for Dapper 85,000
Utilities expense 46,428

Depreciation (MACRS depreciation is $74,311)c 49,782
Automobile expense 12,085
Office supplies expense 4,420
Advertising expense 85,000
Bad debt expense 2,100
Interest expense (all trade- or business-related) 45,000
Rent expense 7,400
Travel expense (meals cost $4,050 of this amount) 11,020
Repairs and maintenance expense 68,300

Accounting and legal expense 3,600
Charitable contributionsd 16,400
Payroll taxes 5,180
Other taxes (all trade- or business-related)
Total expenses
Operating profit $ 503,835

Other income and losses:
Gain on sale of AB stocke $ 18,000
Loss on sale of CD stockf (26,075)
Sec. 1231 gain on sale of landg 5,050
Interest on U.S. treasury bills for entire year ($80,000 face amount) 9,000
Dividends from 15%-owned domestic corporation
Net income 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 tax depreciation includes depreciation adjustments of $8,000 and $2,000 on personal property and real property, respectively, 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 use the land as a parking lot for the business. The partnership purchased the land four years ago for $30,000 and sold it on August 15 of the current year for $35,050. $ 520,810
11,000 16,975
494,115
1,400
(146,000 (1,332,050
12,000
(20,000
ISBN: 0-536-35834-6

Prentice Hall’s Federal Taxation 2007: Comprehensive, by Thomas R. Pope, Kenneth E. Anderson, and John L. Kramer, eds. Published by Prentice Hall. Copyright © 2007 by Pearson Education, Inc.
Partnership Formation and Operation ▼ Corporations 9-47
_ TABLE C9-2
Dapper-Dons Partnership Balance Sheet for January 1 and December 31 of the Current Year (Problem C9-57)
Balance Balance
January 1 December 31
Assets:
Cash $ 10,000 $ 40,000
Accounts receivable 72,600 150,100
Inventories 200,050 146,000

Marketable securitiesa 220,000 260,000
Building and equipment 374,600 465,000
Minus: Accumulated depreciation (160,484) (173,100)
Land
Total assets
Liabilities and equities:
Accounts payable $ 35,000 $ 46,000
Accrued salaries payable 14,000 18,000
Payroll taxes payable 3,416 7,106
Sales taxes payable 5,200 6,560

Mortgage and notes payable (current maturities) 44,000 52,000 Long-term debt 210,000 275,000
Capital:
Dapper 236,060 289,334
Dons
Total liabilities and equities
a Short-term investment.
$901,766 $1,128,000
354,090 434,000
$901,766 $1,128,000
185,000 240,000