Simone Perrier, Mary Salter, and Sean Patten have been partners in a systems design business for the past eight years. Perrier and Patten work full time in the business; Salter has a public accounting practice and works about 5 to 10 hours per week on the administrative side of the business. The business has been successful and the partners are considering expansion.

The partnership agreement states that profits will be distributed as follows:

1. Partners will get 6 percent interest on their average Capital balances.

2. Perrier will get a payment of $75,000 for her service; Salter will get a payment of $9,375 for her service; and Patten will get a payment of $75,000 for his service.

3. The balance remaining will be distributed on the basis of Perrier, 40 percent; Salter, 20 percent; and Patten, 40 percent.

The agreement also stipulates that the distributions outlined in parts 1 and 2 of the agreement will be made even if there are not sufficient profits and that any deficiency will be shared on the basis of part 3.

The capital structure was as follows at December 31, 2017, and reflects the average Capital balances for 2017:

Perrier............................................................... $ 228,750

Salter................................................................ 1,091,250

Patten............................................................... 491,250

Total.................................................................. $1,811,250

There has been some stress in the partnership of late because Perrier believes that she is contributing a major part of the effort but is earning much less than Patten; Salter is upset because she believes that she is earning the least even though her capital is essentially funding the partnership.

Required

Perrier, Salter, and Patten have come to you to ask for advice as to how they might amicably settle the present dispute. Analyze the situation and make a recommendation. Assume net income in 2017 was $400,000.