The partners of Apple, Bere and Carroll LLP share net income and losses in a 5:3:2 ratio, respectively. The capital account balances on January 1, 2008, were as follows:

Apple Capital - 125,000,

Bere Captal 75,000, and

Carroll Capital - $50,000

The carrying amounts of the assets and liabilities of the partnership are the same as their current fair values. Dorr will be admitted to the partnership with a 20% capital interest and a 20% share of net income and losses in exchange for a cash investment. The amount of cash that Dorr should invest in the partnership is:

Question

Business

Angelica Reeves

6 June, 07:10

The partners of Apple, Bere and Carroll LLP share net income and losses in a 5:3:2 ratio, respectively. The capital account balances on January 1, 2008, were as follows:

Apple Capital - 125,000,

Bere Captal 75,000, and

Carroll Capital - $50,000

The carrying amounts of the assets and liabilities of the partnership are the same as their current fair values. Dorr will be admitted to the partnership with a 20% capital interest and a 20% share of net income and losses in exchange for a cash investment. The amount of cash that Dorr should invest in the partnership is:

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Answers (1)

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Anya Klein · Answer 1

The correct answer is $62,500.

Explanation:

According to the scenario, the given data are as follows:

Apple Capital = $125,000

Bere Capital = $75,000

Carroll Capital = $50,000

So, the total capital = $125,000 + $75,000 + $50,000 = $250,000

So, we can calculate the Dorr invest amount by using following formula:

Dorr invest amount = Present capital - Initial total Capital

Where, Present Capital = $250,000 : (100% - 80%) = $312,500

By putting the value, we get

Dorr invest amount = $312,500 - $250,000

= $62,500.