Small Corp. and Big Corp. are equal partners in Medium Enterprises. The total partnership has a net worth of $210,000, split 50/50 between the two corporations. Size Co. has been asked to join the partnership. When the transaction is complete, all three partners will have an equal interest. To accomplish this structural change, Size Co. will contribute $105,000 to the partnership treasury. This transaction will
A) increase the original partners' interests.
B) dilute the original partners' interests.
C) result in a capital gain for the partners.
D) result in a capital loss for the partners.

Question

Quizplus · Accepted Answer

The original partners' interests will be diluted because the partnership will now be split equally among three partners instead of two, reducing each original partner's share from 50% to 33.33%.