ACCT 616 TAX RETURN PROJECT INSTRUCTIONS Christy Albright and Dan Ralls formed the Charter Company on 11/30/ 2012, and chose a tax year ending on 1...
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Can you please complete tax form 1065 and both schedule K forms for the two partners listed in the

instructions?

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ACCT 616 TAX RETURN PROJECT INSTRUCTIONS Christy Albright and Dan Ralls formed the Charter Company on 11/30/ 2012, and chose a tax
year ending on 1 1/ 30. Charter was formed to operate a restaurant (111 the Charter Building at
7848 Pesca Dr., San Francisco, CA 94123) and rent out some space in the restaurant building.
Charter elected to be taxed as a partnership, and the income statement for the year ending
11/30/2017 is as follows: Sales $400,000
COGS —150,000
Tax-exempt interest 6,0 0
Interest income 4,0 0
Dividend income from domestic corporations 5,0 0
Nonqualified dividend income from foreign corporations 3,0 0
Gain on sale of equipment 10,0 0
Depreciation —30,0 0
Repairs and maintenance -7,0 0
Rent expense -12,0 0
Salaries to nonpartners —60,0 0
Salaries to partners -30,0 0
Income from real estate rentals 100,000
Expenses from real estate rentals (includes $10,000 of book depreciation) -80,0 0
Gain on sale of stock (held < 1 yr.) 20,0 0
Health Department fines —2,0 0
Investment interest expense -1,0 0
Subtotal $176,000 Charter chooses the accrual method of accounting. The equipment sold was an imported oven
that had been fully depreciated. It originally cost $4,000 on 5/3/2010 and was sold for $10,000
on 6/9/2017. The tax depreciation amount for the year was $20,000, not including $14,000 of Section 179
expense that Charter chose to take on some equipment they purchased, and not including the
$10,000 per year depreciation of the rental real estate, which is included in the $80,000 of costs
above. (Note: according to the Form 4562 instructions, the depreciation from the rental activity would not need to be disclosed on Form 4562) All of the $30,000 of guaranteed payments goes to Christy. Assume that 40% of the investment
interest expense is nondeductible because it relates to the tax-exempt interest. The stock sold
was 1000 shares of Alter Corporation, purchased on 1/20/2017 for $25,000 and sold on
4/10/2017 for $45,000. Page 1 of 3

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ACCT 616
Christy owns 60% of the partnership, and is an active partner. Christy is the Tax Matters
Partner. Dan owns 40%, but is a passive, limited partner. During the year Christy was
distributed $60,000 and Dan was distributed $40,000. The balance sheet of the partnership is as
follows:
Beginning
Ending
Cash
$10,000
$77,000
Accounts Receivable
10,000
20,000
Inventory
15,000
10,000
Tax-exempt securities
100,000
100,000
Equipment
90,000
140,000
Accumulated depreciation
-50,000
-66,000
Real estate
700,000
700,000
Accumulated depreciation
-40,000
60,000
Total assets
835,000
921,000
Accounts payable
10,000
20,000
Mortgages
500,000
500,000
Capital - Christy
195,000
240,600
Capital - Dan
130,000
160,400
Total liabilities and capital
$835,000
$921,000
All of the $54,000 of equipment purchased this year was restaurant equipment, and was 7-year
property eligible for the Section 179 deduction. Aside from the equipment expensed under
Section 179, all of the new equipment was depreciated under MACRS. There is no AMT
adjustment for depreciation except for the adjustment due to the current year purchases ( the net
adjustment for prior year purchases was zero). All of the mortgage debt is qualified nonrecourse
debt, and none of it is payable in the next year.
Fill out a Form 1065 and all other appropriate forms for Charter and the related Schedules K-1
for Christy and Dan. The necessary addresses and TINs are as follows:
Christy Albright
5050 Winding Way
San Francisco, CA 94123
SS# 056-36-4498
Dan Ralls
3656 Pleasant Ridge
Lincoln, NE 68501
SS# 547-86-1154
Page 2 of 3

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ACCT 616
Charter Company
7848 Pesca Dr.
San Francisco, CA 94123
EIN 85-4409231
A fill-in PDF for all applicable 2016 forms can be found in the Assignment Instructions folder.
Instructions for each form can be found at https://www.irs.gov/forms. While each form will
assist you in completing the tax return, you are only required to submit Form 1065 and a
Schedule K-1 for both Christy and Dan. Save the tax return and Schedules K-1 in PDF format,
with your last name in the file name, and submit the PDF files to the assignment submission link.
The Tax Return Project is due by 11:59 p.m. (ET) on Sunday of Module/Week 7.
Page 3 of 3

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