Please answer this question Problem 131 L0 Profit allocation

Please answer this question.

Problem 13-1 (L0 Profit allocation based on various factors. Rockford, Skeeba, and Tapinski are partners in a business which manufactures specialty railings. Their profit and loss agreement provides for the allocation of profits and losses as follows: Skeeba will receive a bonus equal to 5% of sales in excess of $1,000,000. bonus. it exceeds $50,000. Drawings in excess of annual salaries will be considered a reduction in 1. Salaries of $50,000, $40,000, and $55,000 for Rockford, Skeeba, and Tapinski, respectively 2. 3. All partners will receive a bonus of 10% of net income in excess of $150,000 after their 4. Partners will be allocated interest on their weighted-average capital balance to the extent that capital. Interest is computed at the rate of 10%. 5. Remaining profits or losses will be allocated 35%, 25%, and 40% to Rockford, Skeeba, and Tapinski, respectively

Solution

Statement of Allocation of Income Rockford Skeeba Tapinski Total Salary to Partners           50,000             40,000            55,000          145,000 Sales Bonus                    -               15,000                      -              15,000 Bonus Paid to Partners           10,000             10,000            10,000            30,000 Gain from Sale of Equipment           10,000                      -              10,000            20,000 Interest on Capital             3,083               6,750                      -                9,833 Sub-total           73,083             71,750            75,000          219,833 Remaining Profit - 35% : 25% : 40%           21,058             15,042            24,067            60,167 Total Income Allocated           94,141             86,792            99,067          280,000 Sales Bonus - Skeeba = ($1,300,000 - $1,000,000) X 5% Sales Bonus - Skeeba = $15,000 Calculation of Annual Bonus to all Partners (Income = $280,000): Bonus = 10% X (Net Income - $150,000 - Gain on sale of Equipment - Bonus) Bonus = 10% X ($280,000 - $150,000 - $20,000 - Bonus) Bonus = $11,000 - 0.10 Bonus Bonus to Every Partner = $10,000 Interest Paid to Partner - Rockford : Weighted Average Capital: Amount Invested Weights Weighted Average Amount                                                                  75,000 5/12             31,250                                                                  85,000 7/12             49,583 Total Weighted Average Capital             80,833 Amt. in excess of $50,000             30,833 Interest - 10% X $30,833               3,083 Interest Paid to Partner - Skeeba : Weighted Average Capital: Amount Invested Weights Weighted Average Amount 125000 6/12             62,500 110000 6/12             55,000 Total Weighted Average Capital          117,500 Amt. in excess of $50,000             67,500 Interest - 10% X $30,833               6,750