Problem 13-1 (LO 4) 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:

1. Salaries of $50,000, $40,000, and $55,000 for Rockford, Skeeba, and Tapinski, respectively.

2. Skeeba will receive a bonus equal to 5% ofsales in excess of $1,000,000.

3. All partners will receive a bonus of 10% of net income in excess of $150,000 after their bonus.

4. Partners will be allocated interest on their weighted-average capital balance to the extent that it exceeds $50,000. Drawings in excess of annual salaries will be considered a reduction in 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.