Charlie Owns Activity B Which Was Considered a Passive Activity

question 83

Multiple Choice

Charlie owns activity B which was considered a passive activity and generated a $17,000 suspended loss.Charlie increases his involvement with activity B so that this year activity B is not considered passive for Charlie.During this year,activity B produces a $9,000 loss.In addition,Charlie acquires an investment in activity X,a passive activity,this year.Charlie's share of activity X's income is $13,000.Charlie's salary this year is $70,000.As a result,this year Charlie must

• A)offset B's loss carryover against X's current income and carry over $9,000 loss from activity B to next year.
• B)offset B's carryover loss and current loss against X's income first and then offset any remaining loss against salary.
• C)offset B's $9,000 loss against X's $13,000 income and offset B's loss carryover against the remaining $4,000 of X's income.
• D)offset B's current $9,000 loss against his salary and offset B's loss carryover against X's income and carry over $4,000 of loss to next year.

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Definitions:

Economic Profits

The surplus remaining after deducting both the explicit and implicit costs from a firm's total revenues.

Monopolistically Competitive Firm

A company that operates in a market with many competitors, each offering a differentiated product, allowing for some degree of price control.

Average Costs

Costs per unit of output, calculated by dividing the total cost of production by the number of units produced.