Maria, Who Owns a 50% Interest in a Restaurant, Has

question 123

Multiple Choice

Maria, who owns a 50% interest in a restaurant, has been a material participant in the restaurant activity for the last 20 years. She retired from the restaurant at the end of last year and will not participate in the restaurant activity in the future. However, she continues to be a material participant in a retail store in which she is a 50% partner. The restaurant operations produce a loss for the current year, and Maria's share of the loss is $80,000. Her share of the income from the retail store is $150,000. She does not own interests in any other activities.

• A) Maria cannot deduct the $80,000 loss from the restaurant because she is not a material participant.
• B) Maria can offset the $80,000 loss against the $150,000 of income from the retail store.
• C) Maria will not be able to deduct any losses from the restaurant until she has been retired for at least three years.
• D) Assuming Maria continues to hold the interest in the restaurant, she will always treat the losses as active.
• E) None of the above.

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Definitions:

Predetermined Overhead Rate

A rate used to allocate manufacturing overhead costs to individual products or job orders based on a predetermined formula.

Machine-Hours

The quantity of time machines are in operation, regarded as a factor in production cost calculations.

Casting

A manufacturing process where a liquid material is poured into a mold and solidifies to take on a specific shape.

Finishing

is the process of completing the final stages of manufacturing to prepare products for sale, such as painting, polishing, or packaging.