CHAPTER 4

SUGGESTED ANSWERS

EXERCISES

Exercise 4 - 1

Cholo, Edwin and Lito

Worksheet Summarizing Joint Venture Transactions
May 12 to 26, 2003

Joint Venture Cholo Edwin Lito

Debit Credit Debit Credit Debit Credit Debit Credit
Construction of stand P 3,000 P 3,000
Purchases 30,000 P 30,000
Additional purchases 60,000 45,000 P10,000 5,000
Sales P153,000 P 80,000 P33,000 P40,000
Stand taken by Edwin 2,000 2,000
Unsold merchandise taken by Lito 4,000* 4,000
P 93,000 P159,000 P 80,000 P 75,000 P35,000 P10,000 P44,000 P 8,000
Net profit 66,000 _______
P159,000 P159,000
Distribution of profit:
Permit paid by Cholo P 1,530
Commission 24,000 P 9,900 P12,000
Balance – shared 50%, 10% and 40% 9,285 1,857 7,428
Share in net income _______ P 34,815 _______ P11,757 _______ P19,428
Totals P 80,000 P109,815 P35,000 P21,757 P44,000 P27,428
Cash settlement 29,815 _______ ______ 13,243 ______ 16,572
P109,815 P109,815 P35,000 P35,000 P44,000 P44,000

* Purchases P90,000 ** If markup is 80% of cost, then sales is 180% of cost.

Cost of sales (P153,000 / 180%**) 85,000
Inventory, end P 5,000
Chapter 4 – Joint Ventures
Suggested Answers page 2

Value upon which participants can purchase inventory x 80%

Value assigned to the inventory taken by Lito P 4,000

Exercise 4 – 2

Books of Jonee Books of Vennie Books of Sonie

To set up inventory, end Joint Venture 110,00 Jonee 110,00 Jonee 110,000
0 0
(should be set up before Income from JV 110,000 Joint Venture 110,000 Joint Venture 110,000
recognizing gain or loss)

To recognize gain or loss, Joint Venture 160,00 Joint Venture 160,00 Joint Venture 160,000
0 0
shared 4:2:2 Income from JV 80,000 Jonee 80,000 Jonee 80,000
NI=P50,000 + P110,000 Vennie 40,000 Income from JV 40,000 Vennie 40,000
Sonie 40,000 Sonie 40,000 Income from JV 40,000

To record settlement with Sonie 78,000 Sonie 78,000 Cash 62,400

Sonie* JV Cash 62,400 Jonee 72,800 Loss from JV 15,600
Income from JV 10,400 Income from JV 5,200 Vennie 72,000
Vennie 5,200 Jonee 150,000

* Interest of Sonie (P38,000 + P40,000) P78,000

Bonus to Jonee and Vennie (P78,000 x 20%) 15,600
Cash settlement to Sonie P62,400

The bonus to Jonee and Vennie represents a gain to them and a loss to Sonie. The P15,600 bonus shall be shared by Jonee and Vennie in the ratio of 4:2. The,
the sharing is as follows: Jonee – P15,600 x 4/6 = P10,400; Vennie – P15,600 x 2/6 = P5,200.

Take note that only the managing participant maintains real accounts. The other participants use the name of the managing participant instead of real accounts.
In addition, a participant does not debit nor credit his name in his books. Instead, he uses personal accounts.