Tax Return Problem (1065) chapter 10 Ryan Ross (111-11-1112) Oscar Omega (222-22-2222) Clark Carey (333-33-3333) and Kim Kardigan (444-44-4444) are equal active members in ROCK the Ages LLC. ROCK serves as agents and managers for prominent musicians in the Los Angeles area. The LLC’s Federal ID number is 55-5555555. It uses the cash basis and the calendar year and began operations on January 1 2004. Its current address is 6102 Wilshire Boulevard Suite 2100 Los Angeles CA 90036. ROCK was the force behind such music icons as Rhiannon Burgundy Six Elena Gomez Tyler Quick the Moonwalkers and Conjuring Dragons and has had a very profitable year. The following information was taken from the LLC’s income statement for the current year: Revenues: Fees and commissions $4800000 Taxable interest income from bank deposits 1600 Tax-exempt interest 3200 Gains and losses on stock sales 4000 Total revenues $4808800 Expenses: Advertising and public relations $ 380000 Charitable contributions 28000 Section 179 expense 20000 Employee salaries and wages 1000000 Guaranteed payment Ryan Ross office manager 800000 Guaranteed payment other members 600000 Entertainment subject to 50% disallowance 200000 Travel 320000 Legal and accounting fees $ 132000 Office rentals paid 80000 Interest expense on operating line of credit 10000 Insurance premiums 52000 Office expense 200000 Payroll taxes 92000 Utilities 54800 Total expenses $3968800 During the past couple of years ROCK has taken advantage of bonus depreciation and 179 deductions and fully remodeled the premises and upgraded its leasehold improvements. This year ROCK wrapped up its remodel with the purchase of $20000 of office furniture for which it will claim a 179 deduction. (For simplicity assume that ROCK uses the same cost recovery methods for both tax and financial purposes.) There is no depreciation adjustment for alternative minimum tax purposes. ROCK invests much of its excess cash in non-dividend-paying growth stocks and tax-exempt securities. During the year the LLC sold two securities. On June 15 2015 ROCK purchased 1000 shares of Tech Inc. stock for $100000; it sold those shares on December 15 2015 for $80000. On March 15 2014 ROCK purchased 2000 shares of BioLabs Inc. stock for $136000; it sold those shares for $160000 on December 15 2015. These transactions were reported to the IRS on Forms 1099B; ROCK’s basis in these shares was reported. Net income per books is $840000. The firm’s activities do not constitute qualified production activities for purposes of the 199 deduction. On January 1 2015 the members’ capital accounts equaled $200000 each. No additional capital contributions were made in 2015. In addition to their guaranteed payments each member withdrew $250000 cash during the year. The LLC’s balance sheet as of December 31 2015 is as follows: Beginning Ending Cash $ 444000 $ ?? Tax-exempt securities 120000 120000 Marketable securities 436000 300000 Leasehold improvements furniture and equipment 960000 980000 Accumulated depreciation (960000) (980000) Total assets $1000000 $ ?? Operating line of credit $ 200000 $ 160000 Capital Ross 200000 ?? Capital Oleander 200000 ?? Capital Carey 200000 ?? Capital Kardigan 200000 ?? Total liabilities and capital $1000000 $ ?? Assume that all debt is shared equally by the members. Each member has personally guaranteed the debt of the LLC. The business code for Agents and Managers for Artists Athletes Entertainers and Other Public Figures is 711410. The LLC’s Form 1065 was prepared by Ryan Ross and sent to the Ogden UT IRS Service Center. All members are active in LLC operations. a. Prepare Form 1065 pages 1 4 and 5 for ROCK the Ages LLC using tax basis information for Schedules L and M2. b. If you are using tax return preparation software prepare Form 4562 and Schedule D. c. Prepare Schedule K1 for Ryan Ross 15520 W. Earlson Street Pacific Palisades CA 90272. Tax Return Problem (1020 S) chapter 12 Interest income $100000 Gross sales receipts 2410000 Beginning inventory 9607 Direct labor (203102) Direct materials purchased (278143) Direct other costs (249356) Ending inventory 3467 Salaries and wages (442103) Officers’ salaries ($75000 each to Parsons and Smith) (150000) Repairs (206106) Depreciation expense tax and book (15254) Interest expense (35222) Rent expense (operating) (40000) Taxes (65101) Charitable contributions (cash) (20000) Advertising expenses (20000) Payroll penalties (15000) Other deductions (59899) Book income 704574 A comparative balance sheet appears below. January 12015 December 312015 Cash $47840 $ ? Account receivable 93100 123104 Inventories 9607 3467 Prepaid expenses 8333 17582 Building and equipment 138203 185348 Accumulated depreciation (84235) (?) Land 2000 2000 Total asset $214848 $844422 Account payable $42500 $ 72300 Notes payable (less than 1 year) 4500 2100 Notes payable (more than 1 year) 26700 24300 Capital stock 30000 30000 Retained earnings 111148 ? Total liabilities and capital $214848 $844422 Premium’s accounting firm provides the following additional information. Distributions to shareholders $100000 Beginning balance Accumulated adjustments account $111148 Using the preceding information prepare a complete Form 1120S and Schedule K1s for John Parsons and George Smith 5607 20th Street Cut and Shoot TX 77303. Do not complete the Form 4562. If any information is missing make realistic assumptions.
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