The Rite-Way Plumbing Co. began business March 1, 2011 in Sarasota. Its business address is 124 Division Lane, Sarasota, FL 33645. Its employer identification number is 69-3456789. Its principal business activity is plumbing installation and repair and its business code number is 238220. It files its income tax returns on the calendar-year basis.
The business was formed as a limited partnership by two brothers, John Henry (SSN###-##-#### and James Henry (SSN###-##-####, who work full-time in the business, and their father Tom Henry (SSN###-##-####, the limited partner. The brothers each have a 25% interest in the income, loss, and capital of the business while their father owns a 50% interest in income, loss, and capital, but takes no active interest in the business other than as that of an investor. At the end of 2014, its operations showed cash gross receipts of $1,240,000 and the following cash expenditure items:
Cash Expenditure Items
Salaries and wages (excluding John and James) $378,000
Repairs and Maintenance 2,000
Taxes and Licenses 38,000
Pension Plans (excluding John and James) ` 15,000
Health/Dental Insurance 16,000
Material Purchases 220,000
Truck Expense 45,000
Insurance (excluding health/dental) 65,000
Legal/Professional Fees 3,000
Office Expenses 6,000
Draw – John 75,000
Draw – James 60,000
Total Cash Expenditures $966,000
Although the company maintains a certain level of plumbing supplies for its business, inventory is not a material income producing factor; thus, material purchases are expenses. The partnership uses the cash method of accounting for revenue and expenses.
using the 2014 fill-in forms (the latest available) on the IRS website (www.irs.gov (Links to an external site.)Links to an external site.), prepare pages 1, 2, and 3 of Form 1065 (you are not required to complete Schedules L, M-1, or M-2) for the Rite-Way Plumbing Co. along with the Schedule K-1s for each of the three partners and any other required forms. The partnership wants to maximize its cost recovery deductions for tax purposes.