JOINT ARRANGEMENT

Problem Solving:
1. On January 1, 2021, Entity A, a public entity, and Entity B, a public entity, incorporated Entity C which
has its fiscal and operational autonomy. The contractual agreement of the incorporating entities
provided that the decisions on relevant activities of Entity C will require unanimous consent of both
entities. Entity A and Entity B will have rights to the net assets of Entity C.
Entity A and Entity B invested P 1,000,000 and P 1,500,000, respectively, equivalent to 40:60 capital
interest of Entity C. The financial statements of Entity C provided the following date for its two-year
operation:

Net income (loss) Dividends declared

2021 200,000 100,000
2022 (2,000,000) -

1. What is the balance of Investment in Entity C to be reported by Entity A in its Statement of Financial
Position on December 31, 2022?
a. 1,080,000
b. 1,040,000
c. 240,000
d. 200,000

2. What is the balance of Investment in Entity C to be reported by Entity B in its Statement of Financial
Position on December 31, 2022?
a. 1,500,000
b. 1,620,000
c. 360,000
d. 900,000
Solution: