Richard operates a hair styling boutique out of his home.The boutique occupies 420 of the home's 1,200 square feet of floor space.Other information is as follows: $\begin{array}{llcc}
\text {Gross income from the boutique } & \$10,000 \
\text { Supplies for the boutique } &\$2,400\
\text { Depreciation on total residence } &\$12,000\
\text { Utilities for total residence } &\$6,000\
\end{array}$
What amount of income or loss from the boutique should Richard show on his return?

Question

Richard operates a hair styling boutique out of his home.The boutique occupies 420 of the home's 1,200 square feet of floor space.Other information is as follows: $\begin{array}{llcc}
  \text {Gross income from the boutique  } & \$10,000 \
 \text { Supplies for the boutique  } &\$2,400\
 \text { Depreciation on total residence } &\$12,000\
 \text { Utilities for total residence } &\$6,000\
\end{array}$
 What amount of income or loss from the boutique should Richard show on his return?

Quizplus · Accepted Answer

To calculate the income or loss from the boutique, we need to calculate the expenses related to the boutique and subtract it from the gross income from the boutique.

Expenses related to the boutique: 
- Supplies: $2,400 
- Depreciation on the portion of the residence used for the boutique: $12,000 x (420/1,200) = $4,200 
- Utilities for the portion of the residence used for the boutique: $6,000 x (420/1,200) = $2,100 
Total expenses related to the boutique = $2,400 + $4,200 + $2,100 = $8,700

Income or loss from the boutique: 
$10,000 - $8,700 = $1,300 income

Therefore, the answer is D.

Richard Operates a Hair Styling Boutique Out of His Home