Michael Wingra has operated a very successful hair salon for the past 7 years. It is almost too successful because Michael does not have any free time. One of his best customers, Jesse Tyree, would like to get involved, and they have had several conversations about forming a partnership. They have asked you to provide some guidance about how to share in the profits and losses.

Michael plans to contribute the assets from his salon, which have been appraised at $500,000.

Jesse will invest cash of $300,000. Michael will work full time at the salon and Jesse will work part time. Assume the salon will earn a profit of $120,000.

Requirement one (1)

1. What division of profits would you recommend to Michael and Jesse?Why?
2. Using your recommendation, prepare a schedule sharing the net income.
3. What do you think is the most important thing Michael and Jesse should do to form this partnership?