“The Dapper-Dons Partnership was formed ten years ago as a general partnership to
custom tailor mens clothing. Dapper-Dons is located at 123 Flamingo Drive in
City, ST, 54321. Bob Dapper manages the business and has 40% capital and
profits interest. His address is 709 Brumby Way, City, ST, 54321. The
partnershipvalues
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.
Table 9-1 Dapper Dons
Partnership Income Statement for the 12 Month Ending December 31 of the Current
Year
Sales $2,357,000
Returns
and allowances (20,000)
$2,337,000
Beginning
inventory (FIFO method) $200,050
Purchases 624,000
Labor 600,000
Supplies 42,000
Other
costs(a) 12,000
Goods
available for sale $1475, 050
Ending
inventory(b) (146,000) (1,332,050)
Gross
profit $1,004,950
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
Automotive
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
contributions (d) 16,400
Payroll
taxes 5,180
Other taxes
(all trade-or business related) 1,400
Total
expenses 494,115
Operating
profit $510,835
Other income
and losses:
Gain on sale
of AB stock(e) $18,000
Loss on sale
if 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 corporation 11,000 9,975
Net 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 properly 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
on March 17 for $30,000 and sold it on August 15 of the current year for
$35,050
Table
9-2 Dapper-Dons Partnership Balance Sheet for January 1 and December 31 of the Current
Year
Balance
January 1 Balance December 31
Assets:
Cash $10,000 $40,000
Accounts
receivable 72,600 150,100
Inventories 200,050 146,000
Marketable
securities(a) 220,000 260,000
Building and
equipment 374,600 465,000
Minus:
Accumulated depreciation (160,484) (173,100)
Land 185,000 240,000
Total Assets $901,766 $1,128,000
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 44,000 52,000
(current maturities)
Long-term
debt 210,000 275,000
Capital:
Dapper 236,060 289,334
Dons 354,090 434,000
Total
liabilities and equities $901,766 $1,128,000
(a) Short-term investment

The
Dapper-Dons Partnership was formed ten years ago as a general partnership to
custom tailor mens clothing. Dapper-Dons is located at 123 Flamingo Drive in
City, ST, 54321. Bob Dapper manages the business and has 40% capital and
profits interest. His address is 709 Brumby Way, City, ST, 54321. The
partnershipvalues
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.Table 9-1 Dapper Dons
Partnership Income Statement for the 12 Month Ending December 31 of the Current
YearSales $2,357,000Returns
and allowances (20,000) $2,337,000Beginning
inventory (FIFO method) $200,050Purchases 624,000Labor 600,000Supplies 42,000Other
costs(a) 12,000Goods
available for sale $1475, 050Ending
inventory(b) (146,000) (1,332,050)Gross
profit $1,004,950Salaries
for employees other than partners (w-2 wages) $51,000Guaranteed
payment for Dapper 85,000Utilities
expense 46,428Depreciation
(MACRS depreciation is $74,311)c 49,782Automotive
expense 12,085Office
supplies expense 4,420Advertising
expense 85,000Bad debt
expense 2,100Interest
expense (all trade-or business related) 45,000Rent expense 7,400Travel
expense (meals cost $4,050 of this amount) 11,020Repairs and
maintenance expense 68,300Accounting
and legal expense 3,600Charitable
contributions (d) 16,400Payroll
taxes 5,180Other taxes
(all trade-or business related) 1,400Total
expenses 494,115Operating
profit $510,835Other income
and losses:Gain on sale
of AB stock(e) $18,000Loss on sale
if CD stock(f) (26,075)SEC. 1231
gain on sale of land(g) 5,050Interest on
U.S Treasury bills for entire year (80,000 face amount) 2,000Dividends
from 15%-owned domestic corporation 11,000 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 properly 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
on March 17 for $30,000 and sold it on August 15 of the current year for
$35,050 Table
9-2 Dapper-Dons Partnership Balance Sheet for January 1 and December 31 of the Current
Year Balance
January 1 Balance December 31Assets:Cash $10,000 $40,000Accounts
receivable 72,600 150,100Inventories 200,050 146,000Marketable
securities(a) 220,000 260,000Building and
equipment 374,600 465,000Minus:
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 payable 14,000 18,000Payroll
taxes payable 3,416 7,106 Sales taxes
payable 5,200 6,560Mortgage and
notes payable 44,000 52,000(current maturities)Long-term
debt 210,000 275,000Capital:Dapper 236,060 289,334Dons 354,090 434,000Total
liabilities and equities $901,766 $1,128,000(a) Short-term investment”