Norma formed Hyacinth Enterprises,a proprietorship,in 2010.In its first year,Hyacinth had operating income of $200,000 and operating expenses of $100,000.In addition,Hyacinth had a long-term capital loss of $9,000.Norma,the proprietor of Hyacinth Enterprises,withdrew $50,000 from Hyacinth during the year.Assuming Norma has no other capital gains or losses,how does this information affect her taxable income for 2010?
A)Increases Norma's taxable income by $97,000 ($100,000 ordinary business income - $3,000 long-term capital loss).
B)Increases Norma's taxable income by $41,000 ($50,000 ordinary business income - $9,000 long-term capital loss).
C)Increases Norma's taxable income by $100,000.
D)Increases Norma's taxable income by $50,000.
E)None of the above.

Question

Quizplus · Accepted Answer

Norma's taxable income increases by $97,000 because the operating income minus operating expenses results in $100,000 of ordinary business income. The long-term capital loss of $9,000 can only offset $3,000 of ordinary income, resulting in a net increase of $97,000. Withdrawals do not affect taxable income.

Norma Formed Hyacinth Enterprises,a Proprietorship,in 2010