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Carlos opens a dry cleaning store during the year. He invests $30,000 of his own money...

Carlos opens a dry cleaning store during the year. He invests $30,000 of his own money and borrows $60,000 from a local bank. He uses $40,000 of the loan to buy a building and the remaining $20,000 for equipment. During the first year, the store has a loss of $24,000. In the next year, Carlos has a loss from the dry cleaning store of $18,000. How much of the loss can Carlos deduct in the second year?

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Answer #2

During the first year the loss incurred amounting to $24,000 shall be duducted from the capital invested in the business. Hence at the end of first year, the capital balance shall be $6000(30000-24000). In the second year the loss incurred is $18000 which is higher than the balance capital. Therefore from the capiatal balance, $6000 can be deducted making the capital zero. The balance loss $12000 (18000-6000) shall be shown as accumulated loss in the asset side.

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