The Pelican Partnership was formed on August 1 of the current year and admitted Morlan and...

 

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The Pelican Partnership was formed on August 1 of the current year and admitted Morlan and Merriman as equal partners on that date. The partners both contributed $300,000 of cash to establish a children's clothing store in a local shopping mall. The partners spent August and September buying inventory, equipment, supplies, and advertising for their "Grand Opening" on October 1. Following are some of the costs the partnership incurred during its first year of operations. Assume a calendar year-end. Legal fees to form partnership $8,000 Advertising for "Grand Opening" 18,000 Advertising after opening 30,000 Consulting fees for establishing accounting system 20,000 Rent, five months at $2,000 per month 10,000 Utilities at $1,000 per month 5,000 Salaries to salesclerks (beginning in October) 50,000 Payments to Morlan and Merriman for services 36,000 ($6,000 per month each for three months, beginning in October) Tax return preparation expense 12,000 In addition, on October 1, the partnership purchased all of the assets of Granny Newcombs, Inc. Of the total purchase price for these assets, $200,000 was allocated to the trade name and logo. a. For each listed items, select the applicable tax treatment from the dropdown list. • Legal fees to form partnership 5709 organizational cost v • Advertising for "Grand Opening" $195 startup cost v • Advertising after opening $162 ordinary and necessary business expense v • Consulting fees for establishing accounting system $195 startup cost v • Rent, five months at $2,000 per month Part $195 and part §162 v Utilities at $1,000 per month Part §195 and part §162 v • Salaries to sales clerks $162 ordinary and necessary business expense v • Payments to Carl and Megan for services Guaranteed payment v • Tax return preparation expense $162 ordinary and necessary business expense v • Trade name and logo 5197 intangible asset v b. Enter the amount of for each category listed below. Round any division to two decimal places. Round final answers to the nearest dollar. Determine the total amount of organizational costs. $ 8,000 Determine the total amount of startup costs. $ Determine the total amount of § 162 expenses. Determine the total amount of $ 162 expenses. $ Determine the total amount of amortization expense for the current year related to section 197 assets. $ Determine the total amount of deductible guaranteed payments. $ Feedback T Check My Work In its initial stages, a partnership incurs expenses relating to some or all of the following: forming the partnership (organizational costs), admitting partners to the partnership, marketing and selling partnership units to prospective partners (syndication costs), acquiring assets, starting business operations (startup costs), negotiating contracts, and other items. c. Identify the period over which the costs can be deducted, if any. Section 709 organizational cost: Immediate deduction and/or anmortization over 180 months v Section 195 startup cost: Immediate deduction and/or amortization over 180 months v Section 162 ordinary and necessary business expense: Immediate deduction v Section 197 intangible asset: Amortization over 15 years The Pelican Partnership was formed on August 1 of the current year and admitted Morlan and Merriman as equal partners on that date. The partners both contributed $300,000 of cash to establish a children's clothing store in a local shopping mall. The partners spent August and September buying inventory, equipment, supplies, and advertising for their "Grand Opening" on October 1. Following are some of the costs the partnership incurred during its first year of operations. Assume a calendar year-end. Legal fees to form partnership $8,000 Advertising for "Grand Opening" 18,000 Advertising after opening 30,000 Consulting fees for establishing accounting system 20,000 Rent, five months at $2,000 per month 10,000 Utilities at $1,000 per month 5,000 Salaries to salesclerks (beginning in October) 50,000 Payments to Morlan and Merriman for services 36,000 ($6,000 per month each for three months, beginning in October) Tax return preparation expense 12,000 In addition, on October 1, the partnership purchased all of the assets of Granny Newcombs, Inc. Of the total purchase price for these assets, $200,000 was allocated to the trade name and logo. a. For each listed items, select the applicable tax treatment from the dropdown list. • Legal fees to form partnership 5709 organizational cost v • Advertising for "Grand Opening" $195 startup cost v • Advertising after opening $162 ordinary and necessary business expense v • Consulting fees for establishing accounting system $195 startup cost v • Rent, five months at $2,000 per month Part $195 and part §162 v Utilities at $1,000 per month Part §195 and part §162 v • Salaries to sales clerks $162 ordinary and necessary business expense v • Payments to Carl and Megan for services Guaranteed payment v • Tax return preparation expense $162 ordinary and necessary business expense v • Trade name and logo 5197 intangible asset v b. Enter the amount of for each category listed below. Round any division to two decimal places. Round final answers to the nearest dollar. Determine the total amount of organizational costs. $ 8,000 Determine the total amount of startup costs. $ Determine the total amount of § 162 expenses. Determine the total amount of $ 162 expenses. $ Determine the total amount of amortization expense for the current year related to section 197 assets. $ Determine the total amount of deductible guaranteed payments. $ Feedback T Check My Work In its initial stages, a partnership incurs expenses relating to some or all of the following: forming the partnership (organizational costs), admitting partners to the partnership, marketing and selling partnership units to prospective partners (syndication costs), acquiring assets, starting business operations (startup costs), negotiating contracts, and other items. c. Identify the period over which the costs can be deducted, if any. Section 709 organizational cost: Immediate deduction and/or anmortization over 180 months v Section 195 startup cost: Immediate deduction and/or amortization over 180 months v Section 162 ordinary and necessary business expense: Immediate deduction v Section 197 intangible asset: Amortization over 15 years

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