Norma formed Hyacinth Enterprises, a proprietorship, in 2016. In its first year, Hyacinth had operating income of $400,000 and operating expenses of $240,000. In addition, Hyacinth had a long-term capital loss of $10,000. Norma, the proprietor of Hyacinth Enterprises, withdrew $75,000 from Hyacinth during the year. Assuming Norma has no other capital gains or losses , and ignoring any self-employment taxes, how does this information affect her adjusted gross income for 2016?
A)Increases Norma's adjusted gross income by $157,000 ($160,000 ordinary business income - $3,000 long-term capital loss).
B)Increases Norma's adjusted gross income by $150,000 ($160,000 ordinary business income - $10,000 long-term capital loss).
C)Increases Norma's adjusted gross income by $75,000.
D)Increases Norma's adjusted gross income by $160,000.
E)None of the above.

Question

Quizplus · Accepted Answer

Norma's adjusted gross income increases by $157,000, which is the ordinary business income of $160,000 ($400,000 income - $240,000 expenses) minus the allowable $3,000 deduction for the long-term capital loss. The withdrawal of $75,000 does not affect the adjusted gross income.

Norma Formed Hyacinth Enterprises, a Proprietorship, in 2016