Answered: Beginning Ending Cash $ 444,000 $ ??…

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter13: Investments And Long-term Receivables

Section: Chapter Questions

Problem 7E

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Ryan Ross (111-11-1112), Oscar Omega (222-22-2223), Clark Carey (333-33-3334), and Kim Kardigan (444-44-4445) are equal active members in ROCK the Ages LLC. ROCK serves as agent and manager for prominent musicians in the Los Angeles area. The LLC’s Federal ID number is 55-5555556. It uses the cash basis and the calendar year and began operations on January 1, 2010. Its current address is 6102 Wilshire Boulevard, Suite 2100, Los Angeles, CA 90036. ROCK was the force behind such music icons as Adrianna Venti, Drake Malone, Elena Gomez, Tyler Quick, Queen Bey, and Bruno Mercury and has had a very profitable year. The following information was taken from the LLC’s income statement for the current year:

Recently, 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 $20,000 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, ROCK purchased 1,000 shares of Tech, Inc. stock for $100,000; it sold those shares on December 15 for $80,000. On March 15 of last year, ROCK purchased 2,000 shares of BioLabs, Inc. stock for $136,000; it sold those shares for $160,000 on December 15 of the current year. These transactions were reported to the IRS on Forms 1099–B; ROCK’s basis in these shares was reported.

Net income per books is $840,000. On January 1, the members’ tax basis capital accounts equaled $200,000 each. No additional capital contributions were made this year. In addition to their guaranteed payments, each member withdrew $250,000 cash during the year. All contributions and distributions have been in cash, so the LLC has no net unrecognized § 704(c) gain or loss. The LLC’s balance sheet as of December 31 of this year is as follows:

Details

All debt is shared equally by the members. Each member has personally guaranteed the debt of the LLC. All members are active in LLC operations.

For our purposes, assume the LLC is not considered an SSTB, and ROCK’s operations constitute one active trade or business for purposes of the passive activity and at-risk limitations. (Note that the § 179 deduction is a business-related expense.) The LLC’s UBIA (unadjusted basis immediately after acquisition) equals the total original cost of all leasehold improvements, or $980,000.

The appropriate business code for the entity is 711410. ROCK does not own or use any digital assets. For the Form 1065, page 6, Analysis of Net Income, put all partners’ allocations in cell 2(b)(ii), per IRS instructions for an LLC.

Complete the 2023 Form 1065 for ROCK the Ages LLC with appropriate forms and schedules. Suggested software: ProConnect Tax. Use tax-basis information for Schedules L and M–2. Provide any special information the LLC members might need, including net income from self-employment and information for the § 199A calculation. Attach additional statements if needed, and leave information blank if not available.

Continue by preparing Schedules K–1 for ROCK’s members. Pay attention to any special allocation required for Ryan Ross. Ross’s address is 15520 W. Earlson Street, Pacific Palisades, CA 90272. (Leave other addresses blank.)

Beginning
Ending
Cash
$ 444,000
$
??
Tax-exempt securities
120,000
120,000
Marketable securities
Accumulated depreciation
Total assets
436,000
300,000
Leasehold improvements, furniture, and equipment
960,000
980,000
(960,000)
(980,000)
$1,000,000
$
??
Beginning
Ending
Operating line of credit
Capital, Ross
Capital, Omega
Capital, Carey
$ 200,000
$ 160,000
200,000
??
200,000
??
200,000
??
Capital, Kardigan
200,000
??
Total liabilities and capital
$1,000,000
$
??

Revenues
Fees and commissions
$4,800,000
Taxable interest income from bank deposits
1,600
Tax-exempt interest
3,200
Net gain on stock sales
4,000
Total revenues
$4,808,800
Expenses
Advertising and public relations
$ 380,000
Charitable contributions
28,000
Section 179 expense
20,000
Employee W-2 wages
1,000,000
Guaranteed payment (services), Ryan Ross, office
manager
800,000
Guaranteed payment (services), other members
600,000
Business meals subject to 50% disallowance
200,000
Business restaurant meals and travel (100% deductible)
320,000
Legal and accounting fees
132,000
Office rentals paid
80,000
Interest expense on operating line of credit
10,000
Insurance premiums
Office expense
Payroll taxes
Utilities
Total expenses
52,000
200,000
92,000
54,800
$3,968,800
NOTE

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