Jerry and Matt Decide to Form a Business

question 100

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 stock basis at the end of the second year if they organize the business as an S corporation?

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

---

Definitions:

Myopia

A vision condition characterized by difficulty seeing distant objects clearly, often referred to as nearsightedness.

MIDUS

The Midlife in the United States study, a national longitudinal study of health and well-being.

Midlife

This period of adult life, typically considered to occur from approximately 40 to 65 years of age, is marked by personal, social, and professional growth and reassessment.

Mental Age

A measure of an individual's cognitive ability compared to the average cognitive ability for their actual age.