Partnership tax return problem 1 – aspen ridge

Required:

• Using the information provided below, complete Aspen Ridge limited

partnership’s page 1 of Form 1065; complete Schedule K on page 4 of

Form 1065; complete lines 1 and 2 of the Analysis of Net Income (Loss) at

the top of page 5 of Form 1065; and complete Schedules M-1 and M-2 at

the bottom of page 5 of Form 1065. Finally, complete Mark Sullivan’s

Schedule K-1.

• Form 4562 for depreciation is not required. Include any tax depreciation or

Section 179 expense on the appropriate line of page 1 of Form 1065 or

Schedule K.

• If any information is missing, use reasonable assumptions to fill in any

gaps.

• The forms, schedules, and instructions can be found at the IRS Web

site (www.irs.gov). The instructions can be helpful in completing

the forms.

Facts:

The Aspen Ridge limited partnership was formed on April 1, 2009, by Mark Sullivan,

its general partner, and two other limited partners when they each contributed

an equal amount of cash to start the new enterprise. Aspen Ridge is an outdoor

equipment retailer selling camping, fi shing, skiing, and other outdoor gear to the

general public. Mark has a 33.33% profi ts and capital interest and the limited partners

hold the remaining 66.66% of the profi ts and capital interests. Their profi ts and

capital interests have remained unchanged since the partnership was formed. Mark

is actively involved in managing the business while the limited partners are simply

investors.

• Aspen Ridge is located at 1065 North 365 South, Ogden, UT, 84401.

• The employer identification number for Aspen Ridge is 85-8976654.

• Aspen Ridge uses the accrual method of accounting and has a calendar

year end.

• Mark’s address is 543 Wander Lane, Holliday, UT 84503.

The following is Aspen Ridge’s 2011 income statement for books:

Aspen Ridge Income Statement

For year ending December 31, 2011

Sales 965,500

Sales Returns and Allowances (9,700)

Cost of Goods Sold (538,200)

Gross Profit from Operations 417,600

Other Income:

Interest from money market account 3,200

Gain from sale of photograph 34,000

Gross Income 454,800

C-20 Appendix C

Notes:

1. Aspen Ridge has total assets of $1,725,800 and total liabilities of $540,300 at

the beginning of the year and total assets of $2,065,300 and total liabilities of

$806,640 at the end of the year.

2. Partnership liabilities consist of accounts payable, and Mark, as general partner,

is legally responsible for paying these liabilities if the partnership does not.

3. Two years ago, Aspen Ridge purchased an original Ansel Adams outdoor landscape

photograph with the intent to display it permanently in the retail store.

This year, however, the photograph was sold to a local ski lodge where it is now

hangs on the wall. The $34,000 recognized gain from the sale is reflected in the

income statement above.

4. For tax purposes, Aspen Ridge has consistently elected under Section 179 to

expense any furniture or fixtures purchased every year since it was formed.

As a result, it does not have a tax basis in any of its depreciable assets. This year,

Aspen Ridge expensed $17,300 of signs and display cases for tax purposes.

5. On November 20th, Aspen Ridge distributed $180,000 ($60,000 per partner) to

the partners.

6. Miscellaneous expenses include a $900 fine for violating a local signage ordinance.

7. Aspen Ridge maintains its books using generally accepted accounting

principles.

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