Financial Accounting: Liabilities & Equities (FA3) Exam Review

FA3 Exam Review notes Barbara Wyntjes, CGA, MBA, B.Sc.
Question 5 (6 marks)
On May 1, 2006, Nancy and Drew formed a partnership by investing $96,000 and
$64,000 respectively. On May 1, 2007, the opening balances of the partner’s capital
accounts were $118,000 for Nancy and $68,000 for Drew. For the fiscal year ended April
30, 2008, net income of the partnership was $50,000.
During the 2008 fiscal year, Nancy withdrew $2,000 per month and Drew withdrew
$1,500 per month. Profits of the partnership are to be allocated based on a 2008 salary of
$40,000 for Nancy and $20,000 for Drew, with the remaining profit or loss split based on
original investment proportions.
Required
3 a. Determine the allocation of net income for the year ended April 30, 2008.
3 b. Prepare a statement of partners’ capital for the year ended April 30, 2008.
3 a.
Nancy Drew Total
Salaries $ 40,000 $ 20,000 $ 60,000
Remainder 2008
96,000 / (96,000 + 64,000) × (10,000) (6,000) (6,000)
64,000 / (96,000 + 64,000) × (10,000) (4,000) (4,000)
Total 2008 net income $ 34,000 $ 16,000 $ 50,000
Notes:
50,000 N.I. – 60,000 salary = (10,000) to allocate
1.5 marks for each of Nancy’s and Drew’s calculations
3 b.
Statement of Partners’ Capital
For the year ended April 30, 2008
Nancy Drew Total
Opening balance $ 118,000 $ 68,000 $ 186,000
Share of net income 34,000 16,000 50,000
Total 152,000 84,000 236,000
Drawings (24,000) (18,000) (42,000)
Ending balance $ 128,000 $ 66,000 $ 194,000
Note: 1 mark for format; 1 mark for drawings; 1 mark for net income carry-forward from
part (a)
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