Roberto and Reagan are both 25-percent owner/managers for Bright Light Incorporated. Roberto runs the retail store in Sacramento, California, and Reagan runs the retail store in San Francisco, California. 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 in total?
A)($25,000)
B)($17,500)
C)$5,000
D)$20,000

Question

Quizplus · Accepted Answer

Reagan's allocation from the San Francisco store is 70% of a ($25,000) loss, which equals ($17,500). The total company profit is $125,000. After allocating the specific store profits (70% of Sacramento's $75,000 profit to Roberto and 70% of San Francisco's ($25,000) loss to Reagan), there's a remaining profit of $125,000 - $52,500 (70% of $75,000) + $17,500 (70% of the $25,000 loss) = $90,000 to be distributed among all owners. As a 25-percent owner, Reagan's share of the remaining $90,000 profit is 25%, which equals $22,500. Therefore, Reagan's total income allocation is his share of the San Francisco loss plus his share of the remaining profit: ($17,500) + $22,500 = $5,000.

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