Assignment: Tax Return Problem

You can find any forms that you need on the IRS.gov website. You are welcome to use tax software if you have it available to you.

Joe has a one-fourth and Sue a three-fourths interest in a partnership that operates a toy manufacturing company. The partnership files its partnership return on the calendar-year basis. The partnership books disclose the following information for the current calendar year:

Sales                                                                     $235,000
Returns and allowances                                           10,000
Opening inventory                                                  50,000
Purchases                                                              50,000
Cost of labor and supplies                                       105,000
Closing inventory                                                    61,000
Royalties received for use of patent                          1,100
Salaries                                                                 26,000
Guaranteed payments to partners ($8,400 each)       16,800
Rent paid                                                               17,000
Interest expense on business debt                           550
     (other than payments to partners)
Taxes                                                                    8,500
Bad debt written off                                                1,000
Repairs                                                                  3,000
Depreciation                                                           2,470
Light, postage, stationery, etc.                                 1,680
Net long-term capital gain                                        600
Dividends                                                               200

Using Form 1065 and any additional schedules you deem necessary, compute the partnership income and the partners' distributive shares of items that are required to be separately stated (schedule K-1).