Ross & Saye LLP was organized and began operations on March 1, 2004. On that date, Roberta Ross invested $150,000, and Samuel Saye invested land and building with current fair values of $80,000 and $100,000, respectively. Saye also invested $60,000 in the partnership on November 1, 2004, because of its shortage of cash. The partnership contract includes the following remuneration plan:

Ross Saye Annual salary (recognized as operating expense) $18,000 $24,000 Annual interest on average capital account balances 10% 10%
Remainder 60% 40%

The annual salary was to be withdrawn by each partner in 12 monthly installments.
During the fiscal year ended February 28, 2005, Ross & Saye LLP had net sales of $500,000, cost of goods sold of $280,000, and total operating expenses of $100,000 (including partners’ salaries expense but excluding interest on partners’ average capital account balances). Each partner made monthly cash drawings in accordance with the partnership contract.
Instructions

a. Prepare a condensed income statement of Ross & Saye LLP for the year ended February 28, 2005. Show the details of the division of net income in a supporting exhibit.

b. Prepare a statement of partners’ capital for Ross & Saye LLP for the year ended February 28, 2005.