Norma formed Hyacinth Enterprises, a proprietorship, in 2014. 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 2014?
A) Increases Norma's taxable income by $157,000 ($160,000 ordinary business income - $3,000 longterm capital loss).
B) Increases Norma's taxable income by $150,000 ($160,000 ordinary business income - $10,000 longterm 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

Norma formed Hyacinth Enterprises, a proprietorship, in 2014. 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 2014?
A) Increases Norma's taxable income by $157,000 ($160,000 ordinary business income - $3,000 long­term capital loss).
B) Increases Norma's taxable income by $150,000 ($160,000 ordinary business income - $10,000 long­term 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.

Quizplus · Accepted Answer

Norma's taxable income is increased by the ordinary business income of $160,000 ($400,000 - $240,000) minus the allowable capital loss deduction of $3,000, resulting in a $157,000 increase.

Norma Formed Hyacinth Enterprises, a Proprietorship, in 2014