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Chapter 6
Joint Arrangements
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PROBLEM 3: EXERCISES
1. Solutions:
I. No separate books
Joint Operation –
A Joint Operation – B
(a) 420 (b) 400
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Joint Operation
–C
(c) 100
(f) 110
P/L (630 ÷
3) 210 60 EI
Net
Receipt 360
Optional reconciliation:
JO-Cash
(held by C)
40
(b) 400 0 (c)
1,6
(d) 00
Balance before 1,6
distribution 00
6
3 Payment to
0 A
6
1 Payment to
0 B
Balance retained by 36
C 0
0
0
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Accts. payable
100
d
.
e Joint operation
. 110
Cash
110
JO Books
a Inventory 420
. A, Capital
420
b Cash 400
. B, Capital
400
c Purchases 500
. Cash
400
C, Capital
100
d Cash 1,600
. Sales
1,600
e Expenses 110
. C, Capital
110
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C,
Capital
100 (c)
110 (e)
E P/L (630 ÷
60 210
I 3)
36 Net
0 Receipt
2. Solution:
Investment in Joint
Venture
1,000,
Initial investment 000
240,0 Sh. in loss (720K x
00 33 1/3%)
760,
000 12/31/x1
1. D
Solution:
Joint
operation
Purchases – A 100 120 Sales - A
Purchases – B 80 60 Sales - B
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Joint operation
-A
Collections on
Purchases 100 120 sales
Net share in
Expenses 200 88 loss
Cash settlement -
receipt 92
2. A
Solution:
Joint Operation
Contributions (100 + 30
120 + 80) 0
Expenses (paid from 24 ? Sales
JO cash) 0
36 Bal. before closing (100 +
0 120 - 580)
Joint Operation
Contributions (100 + 30
120 + 80) 0
Expenses (paid from 24 90 Sales (squeeze)
JO cash) 0 0
36 Bal. before closing (100 +
0 120 - 580)
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3. A
Solution:
The joint operation profit is computed as follows:
Joint Operation
Contributions (100 + 30
120 + 80) 0
Expenses (paid from 24 90 Sales
JO cash) 0 0
60 Unsold inventory
42 Profit before salary and
0 bonus
(A)
bonus;
P
B = P - 1+
Br
B = 414,000 – (414,000 ÷ 1.15%) = 54,000
Joint Operation –
Small Joint Operation – Medium
Contributi Contributi
on 100 on 120
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0
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Alternative solution:
Receivable from
Difficult
580
Unsold inventory 60 180 P/L
Total payment to Easy and
Medium 460
4. A
Solution:
Joint
operation
Debit balance 5
Unsold merchandise
17 (squeeze)
Profit - credit balance (₱4
12 x 3)
5. C
Solution:
Joint
operation
Debit balance
(squeeze) 7
18 Unsold merchandise
Profit - credit
11 balance
6. C
Solution:
Joint Operation
Account with A 4 14 Account with C
Account with B 12 22 Unsold merchandise
20 Profit – credit balance
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Operation – B
Payable to Payable to 1
A 4 B 2
2 Unsold
P/L 8 2 inventory P/L 6
1 1
0 Payment Receipt 8
Joint Operation – C
1
4 Receivable from C
P/L 6
8 Payment
*PL: A B C Total
Profit 20
Allocation:
1. Bonus (20 x 10%) 2 2
3. Allocation of remaining profit
(20 – 2 = 18; (18 ÷ 3) 6 6 6 18
As allocated 8 6 6 20
7. A
Solution:
Joint Operation
Account with C 6.5 2.5 Account with A
4 Account with B
0 Profit
Joint Operation – C
Payable to 6.
C 5
P/L 0
Receipt 6.
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P a g e | 10
8. D
Solution:
Joint operation
Account with
18,000 Account with NN
LL 16,000
Account with
Unused supplies
MM 32,000 42,000
Profit - excess
12,000 credit
LL MM NN Total
Bonus to LL 1,200 1,200
Allocation of
balance 3,600 3,600 3,600 10,800
12,00
As allocated 4,800 3,600 3,600 0
Joint operation – MM
32,00
Balance
0
Sh. In profit 3,600 - Inventory taken
Receipt - excess 35,60
debit 0
Joint operation – NN
18,00
Balance
0
3,60
Sh. In profit - Inventory taken
0
14,40 Payment - excess
0
0
P a g e | 11
0 credit
9. B
Solution:
Joint
operation
Credit bal. (8 + 10 +
30 12)
Unsold merchandise (5
15 + 6 + 4)
Profit - net credit
45 balance
Joint operation – A
Inventory
Contributions 10 5 taken
Share in profit (45 ÷ 3) 15
Cash settlement –
receipt 20
0
0
P a g e | 12
Solution:
Requirement (a): Journal entries
(1)
(160K purchases + 20K freight-in) x 1/3 = 60K
0
0
P a g e | 13
(6,000
Large's management fee )
(54,00
Large's bonus (2) 0)
Profit after management fee 360,0
and bonus 00
(2)
(420,000 – 6,000) = 414,000 profit after management fee
but before bonus;
P
B = P - 1+
Br
B = 414,000 – (414,000 ÷ 1.15%) = 54,000
Joint Operation –
Small Joint Operation – Medium
Contributi 100 Contributi
on K on 120K
120
P/L K P/L 120K
220
Receipt K Receipt 240K
Joint Operation –
Large
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0
P a g e | 14
Contributi
on 80K
180 60 Unsold inventory (see requirement
P/L K K ‘b’)
200
Receipt K
Checking:
JO – Cash
Cash contribution of 100 180
Small K K Purchases & freight-in
Cash contribution of 80 240
Large K K Expenses paid out of JO-Cash
900 220
Sales K K Cash settlement to Small
240
K Cash settlement to Medium
200
K Balance retained by Large
Alternative solution:
Payable to S (in M’s & L’s
books) Payable to M (in S’s & L’s books)
100K (a) 120K (b)
120K P/L 120K P/L
220 Rece Rece
K ipt 240K ipt
Payable to L (in S’s & L’s Receivable from L (in S’s & M’s
books) books)
80K (c) (e) 900K
E
I 60K 180K P/L 240K (f)
Receip Payme
200K t nt 660K
0
0
P a g e | 15
Sales 900,000
COGS:
Inventory, beg. 120,000
Purchases & freight-in 180,000
TGAS 300,000
Invty., end. (160K + 20K) x
1/3 (60,000) (240,000)
Gross profit 660,000
Expenses (240,000)
Profit before mgmt. fee &
bonus 420,000
0
0
P a g e | 16
(2)
(420,000 – 6,000) = 414,000 profit after management fee
but before bonus;
P
B = P - 1+
Br
B = 414,000 – (414,000 ÷ 1.15%) = 54,000
Joint Operation –
Small Joint Operation – Medium
Contributi 100 Contributi
on K on 120K
120
P/L K P/L 120K
220
Receipt K Receipt 240K
Joint Operation –
Large
Contributi
on 80K
180 60 Unsold inventory (see requirement
P/L K K ‘b’)
200
Receipt K
Alternative solution:
Small, Capital Medium, Capital
100K (a) 120K (b)
0
0
P a g e | 17
Large, Capital
80K (c)
E
I 60K 180K P/L
200 Recei
K pt
3. Solution:
Investment in Joint
Venture
220,0
Initial investment 00
Sh. in profit (800K x 320,0 200,0 Dividends (500K x
40%) 00 00 40%)
340,0
00 12/31/x1
0
0
P a g e | 18
1. D
2. A
3. B
4. D
5. C
6. B
7. D
Solution:
20x1 20x2 20x3
Cost (100K + 1K transaction 101,00
cost) 0 101,000 101,000
102,00
Fair value 0 110,000 90,000
Costs to sell (4,000) (4,000) (4,000)
Fair value less costs to
sell 98,000 106,000 86,000
Measurement - lower
amount 98,000 101,000 86,000
9. C
10. D
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