Davy Jones provides the following information for Davy Jones’ Nautical Tours, LLC, a Limited Liability Company he operates with his business partner, William Turner
You’re required to prepare a 1065 U.S. Return of Partnership Income, a 1065 Statement 1 – Other Deductions, a 1065 Schedule K1 – Partner’s Share of Income, Deductions, Credits, etc., and a 1065 Schedule B1 – Information on Partners Owning 50% or More of a Partnership
Davy Jones’ Nautical Tours, LLC is operated by David K. Jones (SSN 000-00-0000) and William W. Turner (SSN 111-11-1111). They are each 50% members in the LLC.
Principal Business or Professional Activity Code; 114110
Principal business; Charter fishing tours
Employer Identification Number 867530950
Business address Home address (David K. Jones)
1008 North Harbor Drive 8700 Lake Murray Blvd #2
San Diego, CA 92103 San Diego, 92119
The cash accounting method and GAAP are utilized
The business started January 1st, 2012
Wages consist of $25,000 paid to one employee and $15,000 to another
Guaranteed Payments; $42,000 payments to each member; Jones and Turner
Jones and Turner are considered self-employed, therefore no FICA was withheld on their behalf
Depreciation expense; The Jolly Roger was purchased for $850,000. The depreciation on the income statement is book depreciation and will differ from what is actually used on Line 16 Depreciation of form 1065.
The boat is depreciated using the Modified Accelerated Cost Recovery System (MACRS), half year convention, is in its 4th year of service and the 10-year recovery period is used.
Utilize Publication 946 How to Depreciate Property to calculate the correct depreciation amount to enter on the 1065 Lines 16a and 16c (Form 4562 is not required).
Locate Table A1 in the Appendix to calculate the tax-deductible depreciation.
Interest expense is interest paid on the loan for the boat; the boat loan is considered nonrecourse
Insurance payments were made to cover liability for guests and for the boat
Payroll taxes; Federal Insurance Contributions Act (FICA); Social Security and Medicare payments made on the behalf of employees
Federal Insurance Contributions Act (FUTA) made on behalf of employees
Travel was purely for business purposes
Parking fines are tickets Jones received for parking illegally
Lease expense was paid to Honda Motors for his mother’s car lease, who is not involved in the business in any way
Income Statement
December 31, 20XX
Revenue $400,950.00
Wages ($40,000.00)
Guaranteed Payments ($84,000.00)
FICA ($3,060.00)
FUTA ($85.00)
Depreciation ($85,000.00)
Interest ($43,900.00)
Advertising ($6,350.00)
Supplies ($23,795.00)
Legal fees ($6,940.00)
Insurance ($26,700.00)
Boat slip rental ($33,010.00)
Travel ($6,250.00)
Office expense ($7,940.00)
Parking fines ($1,350.00)
Lease expense ($3,650.00)
Net Profit $28,920.00
Balance Sheet
1/1/2016 12/31/2016
Cash $15,500.00 $22,010.00
Boat $850,000.00 $850,000.00
Accumulated Depreciation ($255,000.00) ($340,000.00)
Total Assets $610,500.00 $532,010.00
Loans $525,000.00 $417,590.00
Equity Investment $50,000.00 $50,000.00
Retained Earnings $35,500.00 $64,420.00
Total Equity + Liability $610,500.00 $532,010.00
Sample Solution