Based on the GAAP basis income statement and balance sheet and the additional information below, prepare the

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Question:

Based on the GAAP basis income statement and balance sheet and the additional information below, prepare the 2014 Partnership tax return for ABS Partnership, including the Schedule K-1’s for ABS’ two partners. Answer all questions on the tax return, using your best judgment for any missing information.

Facts

ABS LP sells building materials (business activity code 444190).

ABS is an accrual basis partnership with a calendar tax year, which has been in business since January 1, 2006.

Its EIN is 54-9874562.

ABS has two partners: Jerry Johnson and Steve Stillwell.

Jerry, who owns 60% of the partnership, is a general partner and is also the tax matters partner.

Steve, who owns 40%, is a limited partner, and does not participate in the business.

The following are ABS’ GAAP basis income statement and balance sheet:

Income Statement

Sales Revenue 2,500,000

Dividend Income 2,000

Gain on Sale of Stocks 12,000

Interest Income 5,000

Tax Exempt Interest 2,500

Total Income 2,521,500

Bad Debt Expense 25,000

Charitable Contributions 1,000

Cost of Goods Sold 1,650,000

Depreciation Expense 7,000

Employee Benefits Expense 20,000

Insurance Expense 40,000

Interest Expense 3,000

Meals & Entertainment Expense 3,000

Office Expense 6,500

Professional Fees Expense 85,000

Rent Expense 48,000

Repairs & Maintenance Expense 15,000

Pension Expense 45,000

Salaries Expense 325,000

Supplies Expense 18,000

Tax Expense 2,000

Travel Expense 23,000

Utilities Expense 51,000

Total Expenses 2,367,500

Net Income 154,000

Balance Sheet

Beg of Year End of Year

Cash 10,000 40,000

Accounts Receivable 75,000 150,000

Allowance for Doubtful Accounts (10,000) (35,000)

Inventory 150,000 209,000

Other Current Assets 120,000 80,000

Buildings & Other Assets 450,000 460,000

Accumulated Depreciation (325,000) (340,000)

Land 50,000 50,000

Total 520,000 614,000

Beg of Year End of Year

Accounts Payable 125,000 145,000

Long-Term Loans 150,000 250,000

Partners' Capital 245,000 219,000

Total 520,000 614,000

Additional information

The partnership keeps its books according to the §704(b) regulations, requiring capital accounts be kept and negative capital accounts be made up and positive capital accounts be paid out.

The partners share profits and losses at the same rates as their capital ownership percentages.

The Dividend Income includes $1,500 of qualified dividends.

The stocks which were sold (Gain on Sale of Stocks) were owned for 5 years by the partnership.

The tax exempt Interest is interest earned on State Municipal bonds.

Actual write offs of Accounts Receivable are $10,000.

Charitable contributions were cash contributions to the United Way.

For services provided to the company, Jerry will receive an annual guaranteed payment of $30,000 (this is included in the salary expense amount on the GAAP income statement).

Depreciation for tax purposes is $15,000.

The long term loan is a nonrecourse loan.

All liabilities are shared according to profit and loss percentages.

The partners received distributions of $108,000 to Jerry and $72,000 to Steve.

The partners’ capital accounts at the beginning of the year were $147,000 Jerry and $98,000 Steve.

Note: You are required to prepare the Form 1065 and Schedule K-1 for each partner. You are not required to complete Forms 1125-A, Schedule B-1, Schedule D and Form 4562