Norma formed Hyacinth Enterprises, a proprietorship, in 2015. 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 adjusted gross income for 2015?
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

The operating income minus operating expenses results in $160,000 of ordinary business income. The long-term capital loss can offset only $3,000 of ordinary income, reducing the increase in adjusted gross income to $157,000. The withdrawal does not affect adjusted gross income.

Norma Formed Hyacinth Enterprises, a Proprietorship, in 2015