Jerry and Matt Decide to Form a Business

question 60

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. What is Jerry's basis at the end of the second year if they organize the business as a partnership?

• A) $0
• B) $6,300
• C) $27,950
• D) $15,050
• E) $15,400

---

Definitions:

Correct Sentence

A sentence that is free from grammatical errors and structurally sound, effectively communicating its intended message.

Past Tense

A verb tense used to describe actions or events that happened at a time before now.

Verb

A word used to describe an action, state, or occurrence.

Passage

A section of text or a way through which one passes, often used in literature or as a physical path.