Reference no: EM132461452

Problem : The KL Partnership is owned equally by Kayla and Lisa. At the beginning of the year, Kayla's basis is $20,000 and Lisa's basis is $16,000. Partnership debt did not change from the beginning to the end of the tax year. KL reported the following income and expenses for the current tax year:

Sales revenue                                                                   $150,000

Cost of sales                                                                       80,000

Distribution to Lisa                                                               15,000

Depreciation expense                                                           20,000

Utilities                                                                              14,000

Rent expense                                                                      18,000

Long-term capital gain                                                            6,000

Payment to Mercy Hospital for Kayla's medical expenses               12,000

Question 1: Assume that the begining balance of the partner's capital account equals the beginning basis for the partner's.

Question 2: Prepare Form 1065 Schedule M-1 and M-2 for this question