Robbie and Ruben are partners operating a portable toilet lease and maintenance operation.For 2014, net income was $50,000 (without taking into consideration the salary allowances).Robbie and Ruben have salary allowances of $90,000 and $60,000, respectively, and remaining profits and losses are shared 6:4.
If their agreement specifies that salaries are allowed only to the extent of income, based on a prorata share of their salary allowances, the division of profits would be:

Question

Quizplus · Accepted Answer

Firstly, we need to calculate the total salary allowances: 
$90,000 + $60,000 = $150,000
As per the agreement, the salary allowances can only be paid to the extent of income. Therefore, each partner's salary allowance is calculated as follows:
Robbie's salary allowance = ($50,000/$100,000) x $90,000 = $45,000
Ruben's salary allowance = ($50,000/$100,000) x $60,000 = $30,000
Now, we need to deduct the salary allowances from the net income to determine the remaining profits:
Remaining profits = $50,000 - $45,000 - $30,000 = $-25,000
Since the remaining profit is negative, it means that there is a loss. This loss is shared in the ratio of 6:4, which means that Robbie's share is 6/10 x $-25,000 = $-15,000 and Ruben's share is 4/10 x $-25,000 = $-10,000. 
Therefore, the final profit and loss distribution is as follows: 
Robbie: $30,000 + (-$15,000) = $15,000
Ruben: $20,000 + (-$10,000) = $10,000 
Hence, the answer is C.

Robbie and Ruben Are Partners Operating a Portable Toilet Lease