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 taxable 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

Norma's adjusted gross income increases by $160,000 (operating income of $400,000 minus operating expenses of $240,000), and she can only deduct $3,000 of the long-term capital loss against ordinary income, resulting in a net increase of $157,000.

Norma Formed Hyacinth Enterprises,a Proprietorship,in 2015