The Dapper-Dons Partnership was formed ten years ago as a general partnership

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 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

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