Financial Accounting: Liabilities & Equities (FA3) Exam Review
Financial Accounting: Liabilities & Equities (FA3) Exam Review Financial Accounting: Liabilities & Equities (FA3) Exam Review
FA3 Exam Review notes Barbara Wyntjes, CGA, MBA, B.Sc. Part 11: Module 10 – Partnership Equity Accounting Blueprint: 5-8% a. Bob and Zarai invited Helen, a CGA, to join their partnership. Helen will be required to invest $120,000 in the partnership. This contribution will entitle her to a 25% ownership interest. Assuming that Bob’s capital balance is $80,000 and that Zarai’s balance is $100,000, what will Helen’s opening balance in her capital account be? 1) $ 45,000 2) $ 75,000 3) $100,000 4) $120,000 b. DEF partnership is formed on January 1, 2004. Partners D, E, and F contribute cash of $20,000, $30,000, and $150,000 respectively. The partners agree on a profit and loss sharing ratio of 1:1.5:7.5. During the first year, net income is $180,000 and the partners’ drawings are D: $20,000, E: $20,000, and F: $70,000. What is partner E’s capital balance as at December 31, 2004? 1) $ 18,000 2) $ 37,000 3) $ 70,000 4) $ 215,000 c. Which of the following views best describes the nature of ownership in a partnership? 1) The normative theory view 2) The proprietary view 3) The entity view 4) The residual equity view d. If one partner in a partnership acts negligently causing losses, under which form(s) of partnership are the other partners not held liable for these losses? Limited Partnership General Partnership 1) Not liable Not liable 2) Liable Liable 3) Not liable Liable 4) Liable Not liable 24
FA3 Exam Review notes Barbara Wyntjes, CGA, MBA, B.Sc. Multiple Choice solutions: a. 2) (120,000 + 80,000 + 100,000) x .25 = 75,000 (Bonus Method) Bonus: 80,000 + 100,000 + new cash 120,000 = 300,000 new book value Cash 120,000 Helen, capital 75,000 Bob, capital 22,500 Zarai, capital 22,500 If asset revaluation: MV = 120,000/.25 = 480,000 - 300,000 NBV = 180,000 increase Goodwill 180,000 Bob, capital 90,000 Zarai, capital 90,000 Cash 120,000 Helen, capital 120,000 b. 2) $30,000 + (15% x $180,000) – $20,000 = $37,000 c. 2) Assets – liabilities = Equity d. 3) Question 4 (6 marks) Elmer, John, and Gill are partners in EJG Company. Their capital balances and profit and loss ratios are as follows: Capital Ratios Elmer $ 60,000 0.35 John 58,000 0.35 Gill 40,000 0.30 Required Assume that Gill will retire from the partnership and that he will be paid $100,000. Prepare the 2 alternative journal entries to record Gill’s retirement. 2.5 Bonus method Gill, capital ........................................................................... 40,000 Elmer, capital ....................................................................... 30,000 John, capital.......................................................................... 30,000 Cash........................................................................................100,000 3.5 Asset revaluation method Unrecorded goodwill $100,000 – 40,000 = 60,000 / 0.30 = 200,000 Goodwill....................................................................... 200,000 Elmer, capital (.35 x 200,000) ................................................70,000 John, capital (.35 x 200,000) ................................................ 70,000 Gill, capital (.30 x 200,000).................................................... 60,000 Gill, capital............................................................................ 100,000 Cash................................................................................................. 100,000 25
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<strong>FA3</strong> <strong>Exam</strong> <strong>Review</strong> notes Barbara Wyntjes, CGA, MBA, B.Sc.<br />
Multiple Choice solutions:<br />
a. 2) (120,000 + 80,000 + 100,000) x .25 = 75,000 (Bonus Method)<br />
Bonus: 80,000 + 100,000 + new cash 120,000 = 300,000 new book value<br />
Cash 120,000<br />
Helen, capital 75,000<br />
Bob, capital 22,500<br />
Zarai, capital 22,500<br />
If asset revaluation: MV = 120,000/.25 = 480,000 - 300,000 NBV = 180,000 increase<br />
Goodwill 180,000<br />
Bob, capital 90,000<br />
Zarai, capital 90,000<br />
Cash 120,000<br />
Helen, capital 120,000<br />
b. 2) $30,000 + (15% x $180,000) – $20,000 = $37,000<br />
c. 2) Assets – liabilities = Equity<br />
d. 3)<br />
Question 4 (6 marks)<br />
Elmer, John, and Gill are partners in EJG Company. Their capital balances and profit and<br />
loss ratios are as follows:<br />
Capital Ratios<br />
Elmer $ 60,000 0.35<br />
John 58,000 0.35<br />
Gill 40,000 0.30<br />
Required<br />
Assume that Gill will retire from the partnership and that he will be paid $100,000.<br />
Prepare the 2 alternative journal entries to record Gill’s retirement.<br />
2.5 Bonus method<br />
Gill, capital ........................................................................... 40,000<br />
Elmer, capital ....................................................................... 30,000<br />
John, capital.......................................................................... 30,000<br />
Cash........................................................................................100,000<br />
3.5 Asset revaluation method<br />
Unrecorded goodwill $100,000 – 40,000 = 60,000 / 0.30 = 200,000<br />
Goodwill....................................................................... 200,000<br />
Elmer, capital (.35 x 200,000) ................................................70,000<br />
John, capital (.35 x 200,000) ................................................ 70,000<br />
Gill, capital (.30 x 200,000).................................................... 60,000<br />
Gill, capital............................................................................ 100,000<br />
Cash................................................................................................. 100,000<br />
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