10-54 PART 3 Flow-Through Entities vvww.cengage.cornitaxationiswft
TAX RETURN PROBLEMS
¦ FMB BLOCK At Home
I. Myron M. Fox, Rhoda R. Finn, Cassandra P. Martin, and Henrietta Q. Pasquale arc equal partners in FFMP, LLP, a small business consulting services firm. The partners are not related, and all are U.S. citizens. The limited liability partnership uses the cash basis and the calendar year and began operations on January 1, 2006. Since that time, it has experienced significant growth each year. Its current address is 2835 Harbor View Drive, Freetown, ME 04469. The following information was taken from the LLP's income statement for the current year:
Revenues Fees collected Dividend income (all qualified) Taxable business interest Tax-exempt interest Long-term capital loss Total revenues
Expenses
$800,000 3,600 1,400 2,600 (4,000) $803,600
Accounting fees $ 12,000 Advertising 5,000 Contribution to United Fund Depreciation expense 8,119 Employee salaries 340,000 Guaranteed payment, Myron M. Fox, office manager 140,000 Entertainment, subject to 50% disallowance 2,600 Travel 12,000 Equipment rental 6,000 Office rentals paid 7,000 Interest expense 4.000 Insurance premiums 2,200 Office expense 20,481 Payroll taxes 25,600 Utilities 15,700 Total expenses $602,700 The partnership placed its $65,000 of furniture and fixtures in service on January 1, 2006. This year, it claimed $8,119 of depreciation expense for both tax and financial accounting purposes. The depreciation creates an adjustment of $156 for alternative minimum tax purposes. No assets were placed in service in the current year. On October 15, the partnership sold securities for $40,000; it had purchased the securities for $44,000 on February 3, 2008. The firm's activities do not constitute "qualified production activities" for purposes of the § 199 deduction. Net income per books is $200,900. On January 1, 2009, the partners' capital accounts equaled $60,000 each. No additional capital contributions were made in 2009, and each partner made total withdrawals of $60,000 during the year. The partnership's balance sheet as of December 31, 2009 is as follows:
Beginning Ending Cash $ 86,576 $ ? Tax-exempt securities 52,000 52,000 Marketable securities 120,000 76,000 Office furniture and equipment 65,000 65,000 Accumulated depreciation (36,576) 7 Total assets $287,000 $ ?