Oceanic 6 LLC Notes: 1. The Others, Co. distributed a $150,000 qualified dividend to Oceanic 6. Oceanic 6 also received $50,000 in dividends from Indonesia Energy, an Indonesian Oil and Gas Company. 2. Of the $20,500 interest income, $12,000 was from a City of Dharma (Illinois) bond (issued in 2017), $5,000 was from a fully taxable corporate bond, $1,000 was from their bank account, and the remaining $2,000 was from a money market account. $500 interest came from their Accounts Receivable. 3. Oceanic 6 purchased 1,000 shares of Man in Black stock for $10,000 in August of 2008. Oceanic 6 sold 500 of those shares on September 1, 2023 for $1,000 after an environmental scare. 4. Miscellaneous income is life insurance proceeds paid on the death of the Vice President, Sawyer Ford. He died on September 26, 2023, after a lifetime of misdeeds caught up with him. 5. This includes total member compensation for the active members (in guaranteed payments) of 500,000, split 50/50 as agreed in their partnership agreement. 6. Oceanic 6 wrote off $27,000 of its accounts receivable as uncollectible. 7. Tax depreciation was $900,000. 8. In the current year, Oceanic 6 did not make any actual payments on warranties it provided to customers. 9. Oceanic 6 made $300,000 of cash contributions to qualified charities during the year. 10. On August 15 of 2023 Oceanic 6 acquired the assets of another business, Smoke Inc. In the process it acquired $300,000 of goodwill. At the end of the year, Oceanic 6 wrote off $30,000 of the goodwill as impaired. 11. The miscellaneous expense account includes $1,000 in speeding tickets for Ms. Austen, $20,000 to settle a sexual harassment lawsuit with a former employee (which required a non-disclosure agreement from the injured party), $3,000 in interest expense on the $50,000 end of the year balance in accounts payable to suppliers, $1,500 in life insurance premiums on the lives of the LLC officers, in addition to $12,500 of other ordinary, necessary and reasonable business expenses. 12. Oceanic 6 expensed all of its organizational expenditures for book purposes in 2005. It expensed the maximum amount of organizational expenditures allowed for tax purposes in 2023. 13. Oceanic 6 purchased machinery with a basis of $50,000 in 2023. Oceanic 6 has included depreciation of $10,000 for this machinery in the book depreciation number on the income statement. No tax depreciation was calculated on this asset. Oceanic 6 would like to take Section 179 on 100% of the purchase price of the machinery for tax purposes. (Hint: complete any book/tax differences or OBI/SSI reconciliations separately for footnotes 7 and 13.) 14. Ms. Austen took a distribution of $10,000 cash in October. Dr. Shephard and Ms. Rousseau did not take any distributions. 15. Oceanic 6 has a $200,000 mortgage on the partnership building. In 2023 they did not make any interest or principle payments, under a special arrangement from the bank holding the note. The balance at the end of 2023 was $200,000. Required: 1. Reconcile book income to ordinary business income and identify each book-tax difference as temporary or permanent. (I recommend using Excel.)

To reconcile book income to ordinary business income for Oceanic 6 LLC, we need to identify each book-tax difference and classify them as either temporary or permanent. Temporary differences are items that will reverse over time (e.g., differences in depreciation methods), while permanent differences are items that will never reverse (e.g., expenses that are not deductible for tax purposes). Here's a simplified reconciliation, assuming that the book income starts with net income as reported on the financial statements: 1. Qualified Dividends: $150,000 from The Others, Co. is likely to be taxed at a preferential rate for tax purposes but is part of book income. (Permanent) 2. Foreign Dividends: $50,000 from Indonesia Energy is included in book income and is taxable for tax purposes. (Permanent) 3. Interest Income: $20,500 total interest income is reported in book income. The $12,000 from municipal bonds is tax-exempt (Permanent), while the rest is taxable (Temporary for the $500 interest on Accounts Receivable if it's accrued but not received). 4. Capital Loss: Sale of Man in Black stock resulted in a loss of $9,000 ($10,000 cost basis - $1,000 sale proceeds). This is a capital loss for tax purposes and may be used to offset capital gains. (Temporary) 5. Life Insurance Proceeds: Generally tax-exempt for the recipient. (Permanent) 6. Member Compensation: $500,

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