Norma Formed Hyacinth Enterprises, a Proprietorship, in 2011

question 71

Multiple Choice

Norma formed Hyacinth Enterprises, a proprietorship, in 2011. 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 2011?

• A) Increases Norma's taxable income by $75,000.
• B) Increases Norma's taxable income by $160,000.
• C) Increases Norma's taxable income by $150,000 ($160,000 ordinary business income - $10,000 long-term capital loss).
• D) Increases Norma's taxable income by $157,000 ($160,000 ordinary business income - $3,000 long-term capital loss).
• E) None of the above.