Roberta invests $16,000 for a 10% interest in Bowie Partnership. In the first year of operations, Bowie reports net income from operations of $80,000 and distributes $6,000 cash to Roberta. How much gross income must Roberta recognize from her investment in Bowie?
A)$2,000
B)$6,000
C)$8,000
D)$80,000

Question

Quizplus · Accepted Answer

Roberta must recognize income based on her share of Bowie's earnings, which is 10%. Therefore, her share of the net income is $80,000 x 10% = $8,000. The cash distribution of $6,000 is not relevant for tax purposes and does not affect the amount of income Roberta must recognize. Therefore, the gross income that Roberta must recognize is $8,000. Option C is the correct choice.

Roberta Invests $16,000 for a 10% Interest in Bowie Partnership