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:

Petrobras

A Brazilian multinational corporation in the petroleum industry, officially known as Petróleo Brasileiro S.A., engaged in the exploration, production, refining, and sale of oil and gas.

Oil Spill

An incident where oil is accidentally released into the environment, especially in water bodies, causing pollution and harm to the ecosystem.

Resistance to Change

Resistance to change is the opposition or unwillingness of individuals or groups to alter their behavior, processes, or structures in response to new conditions or innovations.

Empathy and Support

The ability to understand other people's feelings coupled with providing help or encouragement.