1. Banner, Inc. owns 30 percent of Bruce and applies the equity method.

During the current

year, Banner buys inventory costing P54,000 and then sells its Bruce for P90,000. At the end
of the year, Bruce still holds only P20,000 of merchandise. What amount of unrealized gross
profit must Banner defer in reporting this investment using the equity method?

2. AA Company and BB Company agreed to form a joint operation to offer health services. To
start the operation, the joint operators agreed to contribute cash of P300,000 each. The joint
operation will record which of the following entries to recognize this event?
Cash ………………………………… 600,000
Joint Op. cont. - AA ………. 300,000
Joint Op. cont. - BB ………. 300,000
Three joint operators agree to an arrangement in which they have an equal share in an agricultural
joint operation. The work undertaken in setting up the joint operation cost P300,000 and each
operator contributed in cash. Each operator will need to recognize the following accounting entry:
Cash in Joint operation ……………... 100,000
Cash............................................. 100,000

AA and BB have established the AB Joint Operation. AA has a 60% interest in the joint operation
and BB has a 40% interest.
AA contributed an asset with a carrying amount of P90,000 and a fair value of P120,000 and BB
agreed to provide technical services to the joint operation over the first two years of operations. The
fair value of the technical services was agreed to be P80,000 and the cost to provide the services
was estimated at P65,000 at the inception of the joint operation.
As part of its initial contribution entry BB will record to

3. AA and BB have established the AB Joint Operation. AA has a 60% interest in the joint
operation and BB has a 40% interest.
AA contributed an asset with a carrying amount of P90,000 and a fair value of P120,000 and BB
agreed to provide technical services to the joint operation over the first two years of operations. The
fair value of the technical services was agreed to be P80,000 and the cost to provide the services
was estimated at P65,000 at the inception of the joint operation.
As part of its initial contribution, he journal entry for joint operator AA:

4. A Joint operation holds equipment with a carrying amount of P 1,200,000.

The two Joint operators participating in this arrangement share control equally. They also depreciate
equipment using the straight-line method.
The equipment has a useful life of 5 years. At reporting date each joint operator must recognize the
following entry, in relation to depreciation, in its records:
 5. MM and RR agreed on a joint operation to purchase and sell car accessories. They agreed
to contributed P25,000 each to be used in purchasing the merchandise, share equally in any
gain or loss, and record their Joint operations transactions in their individual books. After one
year, they decided to terminate the arrangement, and data from their records were:
Joint operations account credit balances: in books of MM, P 18,000; in books of RR, P20,200, Cost
of car accessories taken: by MM, P 1,000; by RR, Pl,800.
Expenses paid: by MM, P1,850; by RR,.
How much was the joint operations sales?

6. Angie A., Boris B., and Charles C. sign an agreement to collectively purchase a yacht and to
hire a company to manage and operate the yacht on their behalf. The costs involved in
running and operating the yacht business and the revenue earned from the pipeline are
shared by the three parties based on their ownership percentage. All major operating and
financing decisions related to the yacht business must be agreed to by the three companies.
The cost of purchasing the yacht was P56,000,000. The yacht has an estimated 20-year
useful life with no residual value. The management fee for operating the yacht business for
2017 was P11,200,000. Revenue earned from the yacht business in 2017 was P
18,480,000. AA invested P 16,800,000 for a 30% interest.
Compute the ending capital/investment for Angie A. for 2017:

7. Angie A., Boris B., and Charles C. sign an agreement to collectively purchase a yacht and to
hire a company to manage and operate the yacht on their behalf. The costs involved in
running and operating the yacht business and the revenue earned from the pipeline are
shared by the three parties based on their ownership percentage. All major operating and
financing decisions related to the yacht business must be agreed to by the three companies.
The cost of purchasing the yacht was P56,000,000. The yacht has an estimated 20-year
useful life with no residual value. The management fee for operating the yacht business for
2017 was P11,200,000. Revenue earned from the yacht business in 2017 was P
18,480,000. AA invested P 16,800,000 for a 30% interest.

Compute the share of Angie A. in the gross profit/net income of the joint operation for 2017: