Form 541 - Partnerships - Department Of Treasury Internal Revenue Service

Income

Ordinary Income (Loss)

Schedule L

The partnership’s ordinary income from the

Line 22. The amount on line 21 is sub-

Schedule L contains the partnership’s balance

trade or business activity is shown on lines 1a

tracted from the amount on line 8. The result,

sheets at the beginning and end of the tax year.

$49,370, is entered here and on line 1 of Sched-

All information shown on the balance sheets for

through 8.

ule K. The amount allocated to each partner is

the AbleBaker Book Store should agree with its

Line 1. Gross sales of $409,465 are entered

listed on line 1 of Schedule K – 1.

books of record.

on line 1a. Returns and allowances of $3,365

The entry in column (d) of line 14 for total

are entered on line 1b, resulting in net sales of

assets at the end of the year, $45,391, is carried

$406,100, entered on line 1c.

Signatures

to item F at the top of page 1 since the answer to

Line 2. Cost of goods sold, $267,641, from

question 5 on Schedule B was “No.”

Frank signs the return as a general partner. The

Schedule A, line 8, is entered here.

AbleBaker Book Store did not have a paid

Line 3. Gross profit of $138,459 is shown on

preparer.

Schedule M –1

this line.

Page 2

Schedule M – 1 is the reconciliation of income

Line 7. Interest income on accounts receiv-

Schedule A

per the partnership books with income per Form

able, $559, is entered on this line. The schedule

1065.

that must be attached for this line is not shown.

Schedule A shows the computation of cost of

Line 1. This line shows the net income per

Line 8. Total income, $139,018 (lines 3

goods sold. Beginning inventory, $18,125, is

books of $48,920. This amount is from the profit

through 7), is shown here.

entered on line 1 and net purchases, $268,741,

and loss account (not shown in this example).

are entered on line 2. The total, $286,866, is

Line 3. This line shows the guaranteed pay-

entered on line 6. Ending inventory, $19,225

Deductions

ments to partners.

(entered on line 7), is subtracted from line 6 to

arrive at cost of goods sold, $267,641 (entered

The partnership’s allowable deductions are

Line 5. This is the total of lines 1 through 4

on line 8 and on page 1, line 2).

shown on lines 9 through 21.

of $73,920.

Frank answers all applicable questions for

Line 9. All salaries and wages are included

Line 6. Shown here is the $50 tax-exempt

item 9.

here except guaranteed payments to partners

interest income from municipal bonds recorded

(shown on line 10). Frank enters the $29,350

on the books but not included on Schedule K,

Schedule B

wages paid to the partnership’s employees. The

lines 1 through 7. This interest is reported on

partnership had no employment credits to re-

Schedule K, line 19.

Schedule B contains 12 questions about the

duce that amount.

partnership. Frank answers question 1 by mark-

Line 9. This is line 5 less line 8, $73,870.

ing the “Domestic general partnership” box. He

This line is the same as line 1 of the Analysis of

Line 10. Guaranteed payments of $25,000

answers questions 2 through 11 by marking the

Net Income (Loss) section of Schedule K at the

to partners Frank ($20,000) and Susan ($5,000)

“No” boxes. He answers question 12 by entering

are entered here.

top of page 4.

-0- on this line.

Line 11. Repairs of $1,125 made to partner-

Question 5 asks if the partnership meets all

ship equipment are entered on this line.

Schedule M –2

the requirements listed in items 5a, b, and c.

Line 12. During the year, $250 owed to the

Because the partnership’s total receipts were

Schedule M – 2 is an analysis of the partners’

partnership was determined to be a wholly

not less than $250,000, all three of these re-

capital accounts. It shows the total equity of all

worthless business bad debt. The $250 is

quirements are not met. Frank must complete

partners at the beginning and end of the tax year

shown on this line. (If this had been a nonbusi-

Schedules L, M – 1, M – 2, and item F on page 1

and the adjustments that caused any increase

ness bad debt, it would have been reported in

of Form 1065 and item J on Schedule K – 1.

or decrease. The total of all the partners’ capital

Part I of Schedule D (Form 1065) and included

accounts is the difference between the

Pages 3 – 4

separately on Schedules K and K – 1, line 7, as a

partnership’s assets and liabilities shown on

stated short-term capital loss.)

Schedule K

Schedule L. A partner’s capital account does not

Line 13. Rent paid for the business prem-

necessarily represent the tax basis for an inter-

On Schedule K, Frank lists the total of both

ises, $20,000, is listed on this line.

est in the partnership.

partners’ shares of income, deductions, credits,

Line 14. Deductible taxes of $3,295 are en-

Line 1. As of January 1, the total of the

etc. Each partner’s distributive share of income,

tered on this line.

partners’ capital accounts was $27,550

deductions, credits, etc., is reported on Sched-

(Frank — $14,050; Susan — $13,500). This

ule K – 1. The line items for Schedule K are

Line 15. Interest paid to suppliers during the

amount should agree with the beginning bal-

discussed in combination with the Schedule

year totaled $1,451. This is business interest, so

ance shown on line 21 of Schedule L for the

K – 1 line items, later.

it is entered here.

partners’ capital accounts.

Lines 16a and 16c. Depreciation of $1,174

Line 3. This is the net income per books.

claimed on assets used in the partnership’s

Analysis of Net Income (Loss)

business is entered on these lines. (Line 16b is

Line 5. This is the total of lines 1 through 4.

An analysis must be made of the distributive

left blank because there is no depreciation listed

Line 6. Each partner withdrew $26,440 (to-

items on Schedule K. This analysis is based on

elsewhere on the return.) Frank does not need

taling $52,880) from the partnership. These

the type of partner. Since the AbleBaker Book

to attach Form 4562 because the partnership

withdrawals are shown here and on Schedule K,

Store has two individual partners, both of whom

did not place property in service during 2002 or

line 22. The partners’ guaranteed payments,

are “active” general partners, the total on line 1,

depreciate or claim a deduction for a car or other

which were actually paid, are not included be-

$73,870, is entered on line 2a, column ii.

listed property.

cause they were deducted when figuring the

Line 20. Other allowable deductions of

amount shown on line 3.

Page 4

$8,003 not listed elsewhere on the return and for

Line 9. This shows the total equity of all

Schedules L, M–1, and M–2

which a separate line is not provided on page 1

partners as shown in the books of record as of

are included on this line. Frank attaches a

December 31. This amount should agree with

Partnerships do not have to complete Sched-

schedule that lists each deduction and the

the year-end balance shown on line 21 of

ules L, M – 1, or M – 2 if all the tests listed under

amount included on line 20. This schedule is not

Schedule L for the partners’ capital accounts.

question 5 of Schedule B are met and question 5

shown.

Item J on Schedule K – 1 reflects each

is marked “Yes.” The AbleBaker Book Store

Line 21. The total of all deductions, $89,648

does not meet all the tests, so these schedules

partner’s share of the amounts shown on lines 1

(lines 9 through 20), is entered on this line.

must be completed.

through 9 of Schedule M – 2.

Page 19

Form 541 - Partnerships - Department Of Treasury Internal Revenue Service - 2002 Page 19

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