The Partners of Apple, Bere, and Carroll LLP Share Net

question 49

Multiple Choice

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, 2013, were as follows: $$\begin{array} { | l | r | } \hline \text { Apple, capital } & \$ 25,000 \\\hline \text { Bere, capital } & 75,000 \\\hline \text { Carroll, capital } & 50,000 \\\hline \text { Total partners' capital } & \$ 150,000 \\\hline\end{array}$$ 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:

• A)$25,000.
• B)$30,000.
• C)$37,500.
• D)$75,000.
• E)$90,000.

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Definitions:

MPC

The marginal propensity to consume, which represents the proportion of an increase in income that is spent on consumption rather than being saved.

Saving

The share of earnings not used for immediate spending but saved or invested for future needs.

Consumption Function

An economic formula representing how consumer spending is related to various factors, including income levels.

Personal Saving

Personal saving is the portion of personal income that is not expended on consumption or taxes and is instead saved for future use.