Jerry and Matt Decide to Form a Business

question 74

Multiple Choice

Jerry and Matt decide to form a business.Jerry will contribute $4,200 for a 35% interest and Matt will contribute $7,800 for a 65% interest.The business will take out a $25,000 loan to cover the balance of their working capital needs.They expect that the business will have a loss of $38,000 for the first year.In the second year,the business will have a profit of $52,000 and it will distribute $5,200 to Matt and $2,800 to Jerry.Jerry is in the 33% marginal tax bracket and Matt is in the 28% marginal tax bracket.Their marginal tax brackets will not change as a result of profit or loss from this business.How much tax will Jerry pay in the second year (rounded to the nearest dollar) due to this business if they organize the business as a partnership?

• A)$6,930
• B)$6,006
• C)$5,891
• D)$3,927
• E)$3,003

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Definitions:

Controlling Anger

Techniques and strategies used to regulate and manage feelings of anger, to prevent it from negatively affecting oneself and others.

Spatial Reasoning

The capability to visualize and manipulate objects in space, understanding their relationships and dimensions.

Intelligence

The ability to acquire, understand, and use knowledge, including problem-solving, abstract thinking, and learning from experiences.

Trigger Thoughts

Trigger Thoughts are initial thoughts or stimuli that can lead to a cascade of related thoughts or emotional reactions, often within the context of mental health.