BA 118.

3
Joint Arrangements
Exercises #13

Problem 1 (Joint Venture)

Vicky and Val formed Jayme Corporation through a joint venture agreement on January 1, 2020. Vicky
contributed land and Val contributed ₱300,000 cash and a condominium office unit. The land Vicky
contributed was purchased in year 2010 for ₱500,000. The current fair market value of the land is
₱1,500,000. The condominium unit contributed by Val was purchased in 2015 for ₱1,000,000 and carrying
value of ₱800,000. The current fair market value of the condominium unit is ₱1,200,000 with remaining life
of 10 years.

Jayme Corporation reported net income of ₱200,000 and ₱600,000 in calendar years 2020 and 2021,
respectively. Total dividends declared by Jayme amounted to ₱100,000 each year. The land contributed by
Vicky was sold in 2021 to Vico, a third-party, for ₱1,700,000.

Requirements:
1. Prepare all necessary journal entries in the books of Vicky and Val for 2020 and 2021.
2. Determine the amount of “Share in Jayme’s Net Income” to be reported in the 2020 and 2021 income
statement of Vicky and Val Company, respectively.
3. Determine the carrying value of “Investment in Jayme Company” to be reported in the 2020 and
2021 balance sheet of Vicky and Val Company, respectively.

Problem 2 (Joint Operations)

On January 1, 2020, Jebal Corporation and Oppa Company established a joint operation to manufacture a
product. Each company has a 50% interest in the operations and shares output equally. Jebal contributed
cash of ₱1,000,000 while Oppa undertook to contribute Equipment with an estimated fair value of
₱1,000,000. The carrying value of the building, with an estimated remaining useful life of 2 years, is ₱750,000.

The following information was extracted from the accounts of the joint operations as of December 31, 2020
and 2021:

Balance Sheet 2020 2021

Assets
Cash ₱20,000 ₱40,000
Raw materials 100,000 100,000
Work in progress 730,000 795,000
Inventory 200,000 200,000
Equipment 1,800,000 1,800,000
Accumulated (580,000) (1,160,000)
depreciation
Total assets ₱2,270,000 ₱1,775,000
Liabilities
Accounts payable ₱120,000 ₱145,000
Accrued expenses 50,000 80,000
Bank loan 1,500,000 1,500,000
Total liabilities ₱1,670,000 ₱1,725,000
Net assets ₱600,000 ₱50,000

Cash Receipts and Disbursements Debit Credit

Contribution of Jebal Corporation ₱1,000,000
Bank loan 1,500,000
Equipment 800,000
Wages 100,000
Accounts payable 380,000
Overhead expenses 1,200,000
Subtotal 2,500,000 2,480,000
Ending balance, 2020 ₱20,000
Contribution of Jebal Corporation 950,000
Contribution of Oppa Company 950,000
Interest on bank loan 150,000
Wages 130,000
Accounts payable 400,000
Overhead expenses 1,200,000
Subtotal 1,920,000 1,880,000
Ending balance, 2021 ₱40,000

Cost of Production Report 2020 2021

Work in progress at January 1 ₱0 ₱730,000
Direct materials (raw materials) 400,000 425,000
Direct labor (wages) 150,000 160,000
Overhead (including depreciation) 1,780,000 1,780,000
Subtotal 2,330,000 3,095,000
Less: Transferred to Finished goods 1,600,000 2,300,000
Work in progress at December 31 ₱730,000 ₱795,000

Requirements:
1. Prepare all necessary journal entries in the books of Jebal Corporation and Oppa Company for 2020
and 2021.
2. Determine the net effect on net income of the transactions related to the joint operations in the books
of Jebal Corporation and Oppa Company for 2020 and 2021.
3. Determine the share in the assets and liabilities of the joint operation (excluding inventory
distributions) to be recorded in the books of Jebal Corporation and Oppa Company for 2020 and
2021.