Question

Zhou owns a nonrental business with two separate departments. Department A generates net income of $70,000, and Department B generates a net loss of $58,000. Zhou participates 800 hours in the operations of Department A and 300 hours in the operations of Department B. If Zhou is allowed to treat the departments as components of a single activity, calculate the amount of the Department B loss that can be offset against the income from Department A in the current year. $

Answer 1

Answer: $58,000

Explanation:

If Zhou is allowed to treat the departments as components of a single activity then ALL the losses suffered by Department B can be offset against the Income of Department A because they will be treated as a singular business.

Seeing as Department A has a higher income of $70,000 than the loss of Department B of $58,000, all of Department B's loss can therefore be offset by Department A.