advertising agency that they profits and losses. Johnson, Larson, and Kragen own an following: a. Johnson receives a salary of $50,000. b. Larson receives a salary of $60,000. c. Kragen receives no salary but a bonus equal to 10% of income after the bonus. d. All partners are to receive 10% interest on their average capital invested. The average capital balances are $40,000,$25,000, and $145,000, respectively, for Johnson, Larson, and Kragen. e. Any residual amounts of profit are to be divided equally between the partners. 1. Determine how $220,000 of income would be allocated. 2. Determine how a loss of $34,000 would be allocated assuming a priority system for allocating losses is not followed. 3. Determine how $132,000 of income is allocated among the partners assuming the following priority system: income should be allocated by first giving priority to salary, then bonus, then interest on invested capital, and then according to the profit and loss percentages. Exercise 4 (LO 4) Approaches to the allocation of profits and losses. Medina, Harris, and Anderson are partners in Entertainment Systems. The partnership earned a modest profit of $30,000 in 203. The partnership agreement includes the following regarding the allocation of profits or losses: 1. Interest of 8% is to be paid on the portion of a partner's ending capital balance in excess of $75,000. 2. Medina and Harris receive salaries of $20,000 and $30,000, respectively. Both individuals are actively involved with day-to-day operations. 3. The balance of income is to be distributed in the ratio of 2:1:1 to Medina, Harris, and Anderson, respectively. Assume ending capital balances of $60,000,$80,000, and $100,000 for partners Medina, Harris, and Anderson, respectively. 1. Allocate the profit among the partners, assuming the following: a. The profit and loss ratios are used to absorb any deficiency or additional loss. b. Each of the provisions of the profit and loss agreement is satisfied to whatever extent possible. The priority order is interest, salaries, and then remaining amounts per the profit and loss ratios