On October 1, 2016, Edwards, French, and Gill formed the E, F, and G partnership. Edwards contributed $21,000; French, $35,000; and Gill, $44,000. Edwards will manage the store; French will work in the store three-quarters of the time; and Gill will not work in the business.
1. Compute the partners’ shares of profits and losses under each of the following plans:
a. Net loss for the year ended September 30, 2017, is $42,000, and the partnership agreement allocates 45% of profits to Edwards, 35% to French, and 20% to Gill. The agreement does not discuss sharing of losses.
b. Net income for the year ended September 30, 2017, is $97,000. The first $25,000 is allocated on the basis of relative partner capital balances. The next $48,000 is based on service, with $38,000 going to Edwards and $10,000 going to French. Any remainder is shared equally.
2. Using plan b, prepare the partnership statement of partners’ equity. Assume Edwards, French, and Gill each withdrew $10,000 from the partnership during the year.