Question

"Richard operates a hair styling boutique out of his home. The boutique occupies 420 of the home's 1,200 square feet of floor space. Other information is as followsGross income from the boutique $10,000Supplies for the boutique $ 2,400Depreciation on total residence $12,000Utilities for total residence $ 6,000"What amount of income or loss from the boutique should Richard show on his return?a.$3,500 incomeb.$1,300 incomec.$0 income or lossd.$10,400 losse.None of these choices are correct.

Answer 1

B. $1,300 income

Step-by-step explanation:

Henry’s boutique occupied determinable space in his home. Therefore, we can separate expenses incurred of the boutique from the total residence expenses.

First, we must segregate boutique’s expenses from the total household’s expense.

420/1,200 = 35% (this pertains to boutique’s portion of expense)

Depreciation $12,000 x 35% = $4,200

Utilities $6,000 x 35% = $2,100

Then, we can now compute the amount of income that Henry’s boutique has incurred.

Gross income $10,000

Less expenses:

Supplies $2,400

Depreciation 4,200

Utilities 2,100

total expenses (8,700)

—————

Net income $1,300