Final answer:
Leo contributed $28,000 for a 25% interest in a partnership; therefore, the total value of the partnership is $112,000, calculated by dividing his contribution by the percentage he owns.
Step-by-step explanation:
The calculation provided demonstrates a straightforward approach to determining the total value of a partnership based on the contribution made by a partner and the percentage of interest acquired. In this case, Leo contributed $28,000 for a 25% interest in the partnership.
Contribution = Percentage of Interest × Total Value
Thus, the total value of the partnership (V) can be calculated as:
V = Contribution / Percentage of Interest
V = $28,000 / 0.25
V = $112,000
This outcome indicates that Leo's contribution represents a quarter of the total value of the partnership. The fact that the total value is four times the contributed amount aligns with the nature of percentage interests. In a partnership, the percentage of interest owned by a partner corresponds proportionally to their share in the total value of the partnership. In this scenario, Leo's 25% interest, based on his $28,000 contribution, implies that his share constitutes a quarter of the entire partnership.
Understanding the total value of a partnership is crucial for partners to gauge the financial structure and distribution of ownership within the business. This calculation provides valuable insights into the relative ownership stakes of partners and serves as a foundational element for partnership accounting and decision-making processes.