Scenario 5 - W & M Partnership Prepare partnership return and the appropriate K-1s for W & M Partnership. William Winston (SSN: 226-00-4265) lives at 53 Mantis Road, Your City, Your State - Your Zip. He operates Lovely Lady Beauty Salon at 1096 Lovely Lady Lane, Your City, Your State - Your Zip. Mr. Winston started his business as a sole proprietor. He has discovered that he cannot do it all himself and, with Mary Martin (SSN: 111-99-8989), they formed a partnership. Mary's address is 9478 Ivy Leaf Way, Your City, Your State - Your Zip. When the partnership was formed on January 15, 2023, William supplied all equipment and inventory, and Mary supplied $5,000 cash for working capital. William and Mary agreed that all future profits and losses would be split equally. William will be the tax matters partner. The partnership is cash basis and uses calendar year reporting. Its EIN is 54-8995263

W & M Partnership Financial Information

Item Amount

Gross sales $69,327

Advertising $ 375

Commissions $ 400

Supplies $ 685

Business personal property tax $ 245

Wages (employees) $14,530

Rentals of business property $ 7,100

Business insurance premiums $ 596

License fees $ 350

Travel expenses $ 800

Bank charges $ 789

Phone expenses $ 894

FUTA/FICA taxes $ 2,100

Depreciation expenses $ 603

Section 179 deduction $ 1,145

Inventory Information

Contributed inventory $ 2,800

Inventory purchased $13,940

Ending inventory $ 2,000

Personal Vehicle Logbook Information

Date placed into service 1/15/2023

Business miles for the tax year 4,240

Commuting miles for the tax year 1,946

Personal miles for the tax year 2,110

Standard mileage rate 1/1-12/31 $0.655

* Assume mileage was incurred evenly throughout the year.

** Company policy is to reimburse business mileage at the standard rate.

Mr. Winston purchased the following equipment, all of which was used 100% for business.

Item Purchase Date Cost

Office furniture 1/15/23 $1,032

Fixtures 1/15/23 $ 167

Store sign 1/15/23 $ 250

Card reader 1/15/23 $ 458

Display case 1/15/23 $ 225

Telephone 1/15/23 $ 218

Mirrors * 1/15/23 $ 85

Manicure table * 1/15/23 $ 817

Computer 1/15/23 $ 503

Facial chair 1/15/23 $ 487

Adding machine/calculator * 1/15/23 $ 80

Manicure chair * 1/15/23 $ 163

Printer 1/15/23 $ 285

* Mr. Winston wishes to expense these items under Section 179.

Note: Do not use special depreciation for any of the assets.

What is the adjusted basis for William and for Mary at the time the partnership was formed?

Prepare a balance sheet for W & M Partnership as of 12/31/23.

What is the gross profit from Form 1065?

a) $69,327 b) $54,587 c) $55,387 d) $22,343

What is the ordinary business income (loss) from Form 1065?

a) $69,327 b) $22,343 c) $32,244 d) $54,587 20.

What is the ordinary business income (loss) from William's Schedule K-1?

a) $16,122 b) $27,294 c) $34,664 d) $11,172