Norma formed Hyacinth Enterprises,a proprietorship,in 2013.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,how does this information affect her taxable income for 2013?
A)Increases Norma's taxable income by $157,000 ($160,000 ordinary business income - $3,000 long-term capital loss).
B)Increases Norma's taxable income by $150,000 ($160,000 ordinary business income - $10,000 long-term capital loss).
C)Increases Norma's taxable income by $75,000.
D)Increases Norma's taxable income by $160,000.
E)None of the above.

Question

Quizplus · Accepted Answer

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

Norma Formed Hyacinth Enterprises,a Proprietorship,in 2013