Question

Pam and Joe each own 50% of Tucson LLC a limited liability company located in Tucson, AZ which was created in April of 2019. Tucson LLC provides veterinary services and uses the cash method of accounting. Pam and Joe have come to you on December 30, 2019 to ask your advice on some transactions they are considering.

Tucson's financial information is provided below:

Profit and Loss Statement January 1, 2019-December 30, 2019:

Gross Receipts: Veterinary Services $675,000 Expenses: Salaries $400,000 Utilities $17,000 Depreciation $15,000 Supplies $75,000 Interest $20,000

Total Expenses $557,000 Net Income $148,000

Balance Sheet – 12/30/2019

Assets: Cash $ 8,500 Equipment $50,000 A/D – Equipment (21,500) Building $250,000 A/D – Building (100,000) Total Assets $187,000 Liabilities & Equity: Mortgage – Building $25,000 Member Capital – Avery $81,000 Member Capital – Henry $81,000

Total Liabilities & Equity $187,000

Please provide Tucson LLC advice on the following transaction:

2. Tucson LLC is considering whether or not they should expand their business to sell flea & tick medications, dog and cat food, pet toys and collars beginning on 1/1/2020. Discuss the tax issues that we have covered so far this semester that may result from Tucson LLC maintaining inventory in addition to providing veterinary services.

Answer 1