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, fishing, skiing, and other outdoor gear to the general public. Mark has a 33.33% profits and capital interest and the limited partners hold the remaining 66.66% of the profits 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
• 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 Returns and Allowances (9,700)
Cost of Goods Sold (538,200)
Gross Profit from Operations 417,600
Interest from money market account 3,200
Gain from sale of photograph 34,000
Gross Income 454,800
Employee wages 95,400
Interest on accounts payable 2,700
Payroll and property taxes 10,800
Rent on retail building 18,500
Depreciation on furniture and fixtures 4,550
Guaranteed payments to Mark Sullivan 35,000
Accounting and legal services 4,400
Meals and entertainment 2,240
Charitable contribution to the Sierra Club 3,300
Miscellaneous expenses 5,750
Total Expenses (201,640)
Net Income for Books $ 253,160
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.
• 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.