Priscella Pursued a Hobby of Making Bedspreads in Her Spare

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:
$\begin{array}{llr} \text { Supplies} &\$4,000\\ \text { Interest on loan to get business started } &500\\ \text { Advertising } &6,500\end{array}$

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 $11,000 of the expenses as itemized deductions.
D) Include $10,000 in income and deduct interest of $500 for AGI.
E) None of the above.