Sav Berlo, Silvio Felini, and Louis Valente have formed a partnership. Berlo invested $30,000, Felini $40,000, and Valente $50,000. Berlo will manage the store, Felini will work in the store half time, and Valente 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 $200,000, and the partnership agreement allocates 40 percent of profits to Berlo, 25 percent to Felini, and 35 percent to Valente. The agreement does not discuss the sharing of losses.

b. Net income for the year is $354,000. The first $150,000 is allocated based on partner capital investments. The next $72,000 is based on service, with Berlo receiving $56,000 and Felini receiving $16,000. Any remainder is shared equally.

2. Revenues for the year were $1,014,000 and expenses were $660,000. Under plan (b), prepare the partnership income statement for the year. Assume a January 31, 2014, year end.

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