Question

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?

Answer 1

Answer:

net income of Reagan = $5000

Explanation:

given data

profit companywide = $125,000

profit from the Sacramento = $75,000

loss from the San Francisco = $25,000

profit from the remaining stores = $75,000

to find out

how much income will be allocated to Reagan

solution

we know that Reagan's Profit From own store  is 25,000 and 70% belongs to them only

so here profit to be distributed on pro rata basis will be as

profit to be distributed = $75000 + 30% of Roberto profit - 30% of Reagan profit    ..................1

profit to be distributed = $75000 + 30% × $75,000 - 30% ×  $25,000

profit to be distributed = $90000

and here share of Reagan is = 25% of $90000

share of Reagan = $22500

so net income of Reagan will be here as

net income of Reagan = $22500 - 70% of 25000

net income of Reagan = $5000