Question

The KL Partnership is owned equally by Kayla and Lisa. At the beginning of the year, Kayla’s basis is $20,000 and Lisa’s basis is $16,000. Partnership debt did not change from the beginning to the end of the tax year. KL reported the following income and expenses for the current tax year:

Sales revenue $150,000

Cost of sales 80,000

Distribution to Lisa 15,000

Depreciation expense 20,000

Utilities 14,000

Rent expense 18,000

Long-term capital gain 6,000

Payment to Mercy Hospital for Kayla’s medical expenses 12,000

Prepare a Microsoft Excel spreadsheet that could be used in a CPA firm to accumulate KL’s information that would be reported on Form 1065, page 1 [Ordinary business income (loss)] and page 4 (Schedule K).How much is the partnership’s ordinary income on page 1? What information is shown on Schedule K?

Answer 1

Partnership's ordinary taxable income
	Amount in $
Sales revenue	150,000
Less :Cost of sales	80,000
Less: Depreciation expense	20,000
Less: Utilities	14,000
Less: Rent expense	18,000
Total ordinary income	18,000
Separately stated items:
Long term capital gain $6,000
The distribution to Lisa is not deductible by the partnership. The payment to Mercy hospital for Kayla's expenses is treated as a distribution to Kayla in the amount of $ 12,000. Kayla may claim a deduction for medical expenses on her personal income tax return.
Schedule K - Long Term Capital Gain of $ 6,000.