Jerry and Matt Decide to Form a Business

question 64

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 an S corporation?

• A)$6,930
• B)$6,006
• C)$3,927
• D)$3,003
• E)$0

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Definitions:

Private Speech

Spoken language that is not intended for others, commonly used by children during the preschool years.

Scaffolded Speech

An instructional technique where the support is gradually removed as the learner becomes more proficient, often seen in language learning where a teacher or caregiver provides tailored support to match the learner's current level.

Fast Mapping

The rapid and intuitive process by which young children learn new words by quickly associating them with their meanings.

Expressive Style

Pertains to the way an individual communicates their thoughts, feelings, and ideas, often characterized by emotional expressiveness and creativity.