Roberto and Reagan are both 25-percent owner/managers for Bright Light Inc.Roberto runs the retail store in Sacramento, CA, and Reagan runs the retail store in San Francisco, CA.Bright Light generated a $125,000 profit companywide made up of a $75,000 profit from the Sacramento store, a ($25,000)loss from the San Francisco store, and a combined $75,000 profit from the remaining stores.If Bright Light is taxed as a partnership and it is decided that both Roberto and Reagan will be allocated 70 percent of his own store's profit, with the remaining profits allocated pro rata among all the owners, how much income will be allocated to Reagan?
A)($25,000)
B)($17,500)
C)$5,000
D)$20,000

Question

Quizplus · Accepted Answer

Reagan's allocation: 70% of his own store's loss = 70% of ($25,000) = ($17,500). The remaining $7,500 loss is allocated pro rata among all owners. Since Reagan owns 25%, his share of the remaining loss is 25% of $7,500 = ($1,875). The total profit from other stores is $75,000, and Reagan's share as a 25% owner is 25% of $75,000 = $18,750. Therefore, Reagan's total income allocation is ($17,500) + ($1,875) + $18,750 = $5,000.

Roberto and Reagan Are Both 25-Percent Owner/managers for Bright Light