Fresco and Garcia Form a Partnership-HVAC Pros

question 71

Essay

Fresco and Garcia form a partnership-HVAC Pros. Garcia's capital contribution is $10,000, and Fresco's is $15,000. The partnership agreement provides that profits are to be shared, with 40 percent for Garcia and 60 percent for Fresco. Later, Garcia makes a $10,000 loan to the partnership when it needs working capital. When the partnership is dissolved, its assets are $50,000, and its debts are $8,000. How should the assets be distributed?

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Definitions:

Cognitive Bias

A systematic pattern of deviation from norm or rationality in judgment, whereby inferences about other people and situations may be drawn in an illogical fashion.

Concept Hierarchy

A system of organizing concepts from the most general to the most specific, facilitating understanding and learning by structuring knowledge in a hierarchical manner.

Ultimatum Game

A game in economic experiments where two players decide on how to divide a sum of money; refusal by one player results in neither player receiving anything.

Rational Self-Interest

The principle that individuals will make decisions that they perceive to be the best for themselves, maximizing their own benefit.