Priscella Pursued a Hobby of Making Bedspreads in Her Spare

question 73

Multiple Choice

Priscella pursued a hobby of making bedspreads in her spare time.Her AGI before considering the hobby is $40,000.During the year she sold the bedspreads for $10,000.She incurred expenses as follows: Assuming that the activity is deemed a hobby,how should she report these items on her tax return?

• A) Include $10,000 in income and deduct $11,000 for AGI.
• B) Ignore both income and expenses since hobby losses are disallowed.
• C) Include $10,000 in income, deduct nothing for AGI, and claim $10,000 of the expenses as itemized deductions.
• D) Include $10,000 in income and deduct interest of $500 for AGI.
• E) None of the above.

---

Definitions:

Compounded Quarterly

The process where interest on an investment is calculated and added to the principal every three months, contributing to the growth of the investment amount.

Compounded Monthly

Entails the regular addition of interest to the principal balance of a loan or deposit every month, affecting overall returns or costs.

Semi-monthly Payments

Payments that are made twice a month, often on the 1st and 15th, typically in the context of salaries or loans.

Loan to Value Ratio

A financial term used by lenders to express the ratio of a loan to the value of an asset purchased.