Sheila Sasso, Karen Schwimmer, and Jim Perry have formed a partnership. Sasso invested $60,000; Schwimmer, $120,000; and Perry, $180,000. Sasso will manage the store, Schwimmer will work in the store three-quarters of the time, and Perry will not work in the business. 

Required

1. Compute the partners’ shares of profits and losses under each of the following plans:

a. Net loss is $70,500, and the partnership agreement allocates 45 percent of profits to Sasso, 35 percent to Schwimmer, and 20 percent to Perry. The agreement does not discuss the sharing of losses.

b. Net income for the year is $136,500. The first $45,000 is allocated on the basis of partners’ Capital investments. The next $75,000 is based on service, with $45,000 going to Sasso and $30,000 going to Schwimmer. Any remainder is shared equally.

c. Net loss for the year is $136,500. The first $45,000 is allocated on the basis of partners’ Capital investments. The next $75,000 is based on service, with $45,000 going to Sasso and $30,000 going to Schwimmer. Any remainder is shared equally.

2. Revenues for the year were $858,000 and expenses were $721,500. Under plan (b), prepare the partnership income statement for the year. Assume a year end of September 30, 2020.

3. How will what you have learned in this problem help you manage a partnership?