Jerry and Matt Decide to Form a Business

question 1

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 32% marginal tax bracket and Matt is in the 24% 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) $5,712
• D) $3,927
• E) $3,003

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Definitions:

Differential Association

A theory in sociology suggesting that individuals learn criminal behavior from their environment and personal associations.

Edwin Sutherland

An American sociologist known for pioneering the theory of differential association, which suggests that criminal behavior is learned through social interactions.

Socialization

The process by which people learn their culture. They do so by entering and disengaging from a succession of roles and becoming aware of themselves as they interact with others.

Youth Gangs

are groups of young individuals who come together based on shared interests or identity, often associated with crime and anti-social behavior.