Chapter 5

Joint Arrangements

PROBLEM 5-1: TRUE OR FALSE

1. FALSE 6. TRUE 11. FALSE 16. TRUE
2. TRUE 7. FALSE 12. FALSE 17. TRUE
3. FALSE 8. FALSE 13. FALSE 18. TRUE
4. TRUE 9. TRUE 14. TRUE 19. FALSE
5. TRUE 10. FALSE 15. FALSE 20. FALSE

PROBLEM 5-2: THEORY

1. C 6. D
2. B 7. B
3. B 8. A
4. A 9. C
5. D 10. D

PROBLEM 5-3: THEORY

1. B 6. B
2. A 7. A
3. C 8. D
4. D 9. A
5. C 10. A

PROBLEM 5-4: THEORY & COMPUTATIONAL

1. C

2. A

3. C

4. B

5. A

6. B

7. C

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8. Solutions:

Case #1: No separate books

Requirement (a):
Books of Cow Books of Chicken
a. Joint operation 300 Joint operation 300
Inventory 300 Payable to Cow 300

b. Joint operation 500 JO - Cash 300

Payable to Chicken 500 Cash 300

c. No entry Joint operation 100

JO Cash 100
d. Receivable from Chicken 800 JO - Cash 800
Joint operation 800 Joint operation 800
e. No entry Joint operation 200
JO - Cash 200

Requirement (b):
Joint operation
Merchandise contributions (a) 300
Purchases (c) 100 800 Sales (d)
Expenses (e) 200 50 Unsold invty. (g)
250 Credit balance - Profit

Requirement (c):

Joint operation - Cow

Merchandise contribution (a) 300
Share in profit (250K x 50%) 125 50 Inventory taken (g)
Cash receipt (Dr. bal.) 375

Joint operation - Chicken

Cash contribution (b) 300
Share in profit (250K x 50%) 125
Cash receipt (Dr. bal.) 425

Reconciliation:
JO - Cash
Cash contribution (b) 300
Sales (d) 800 100 Additional purchases (c)

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 200 Expenses paid (e)
Cash balance (Dr. bal.) 800

JO - cash balance 800

Allocation:
Cash distribution to Cow 375
Cash distribution to Chicken 425
Total 800
As allocated -

Requirement (d):
Books of Cow Books of Chicken
g. Inventory 50 Payable to Cow 50
Joint operation 50 Joint operation 50
h. Joint operation 250 Joint operation 250
Payable to Chicken 125 Payable to Cow 125
Sh. in profit 125 Sh. in profit 125
i. Cash (squeeze) 375 Cash (squeeze) 425
Payable to Chicken 425 Payable to Cow 375
Receivable from Chicken 800 JO cash 800

T-account analyses:

Cows books:
Joint operation - Cow's books
(a) 300
(b) 300 800 (d)
50 (g)
(h) 250
-

Payable to Chicken
300 (b)
(i) 425 125 (h)
-

Receivable from Chicken

(d) 800
800 (i)
-

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Chickens books:

Joint operation - Chicken's

books
(a) 300
(c) 100 800 (d)
(e) 200 50 (g)
(h) 250
-

Payable to Cow
300 (a)
(g) 50 125 (h)
(i) 375
-

JO - Cash

(b) 300 100 (c)

(d) 800 200 (e)
800 (i)
-

Case #2: Separate books

Requirement (a):
Books of Cow Books of Chicken Joint operations
Books
a. Int. in JO 300 No entry Inventory 300
Inventory 300 Cow, capital 300
b. No entry Int. in JO 500 Cash 500
Cash Chicken, cap. 500
c. No entry No entry Inventory 100
Cash 100
d. No entry No entry Cash 800
Sales 800

COGS 350
Inventory 350
e. No entry No entry Expenses 200
Cash 200

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Requirement (b):
Sales 800
Cost of sales (300 + 100 -50) (350)
Gross profit 450
Expenses (200)
Profit 250

Requirement (c):
Int. JO - Cow
Merchandise contribution (a) 300
Share in profit (250K x 50%) 125 50 Inventory taken (g)
Cash receipt (Dr. bal.) 375

Int. in JO - Chicken
Cash contribution (b) 300
Share in profit (250K x 50%) 125
Cash receipt (Dr. bal.) 425

Reconciliation:
Cash
Cash contribution (b) 300
Sales (d) 800 100 Additional purchases (c)
200 Expenses paid (e)
Cash balance (Dr. bal.) 800

Alternative solution:
Cow, capital
300 Merchandise contribution (a)
Inventory taken (g) 50 125 Share in profit (250K x 50%)
375 Cash receipt (Cr. bal.)

Chicken, capital
300 Cash contribution (b)
125 Share in profit (250K x 50%)
425 Cash receipt (Cr. bal.)

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9. Solution:
Investment in Joint Venture
beg. 800,000
Sh. In profit Sh. In dividends
360,000 60,000
(1.2M x 30%) (200K x 30%)
1,100,000 end

10. C - Pulham Corp. shall use the equity method to account for its
investment in joint venture. Accordingly, in its financial statements (that
are not separate financial statements), Pulham shall use the one-line
consolidation concept. Pulhams share in the net changes in Angels
Corp.s net assets is accounted for in its investment account (balance
sheet) and share in profit or loss of joint venture account (statement of
comprehensive income). Therefore, the receivable is not eliminated.

PROBLEM 5-5: MULTIPLE CHOICE COMPUTATIONAL

1. B
Solution:
Joint operation
Merchandise-A 8,500 20,400 Cash sales-C
Merchandise-B 7,000 4,200 Cash sales-C
Freight-in-C 200 1,210 Merchandise-B
Purchases-C 3,500 540 Unsold mdse. charged to A
Selling expenses-C 550
6,600 Profit - excess credit

2. A
Solution:
Joint operation - A
Merchandise - A 8,500
1,320 540 Unsold mdse. charged to A
9,280 Receipt - excess debit

3. C
Solution:
Joint operation
Merchandise-A 25,000
Merchandise-B 25,000
Expenses
4,450 92,650 Sales (squeeze)
(1,850 + 2,600)
38,200 Credit balances (18K + 20.2K)
4. C
Solution:
Joint operation

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Merchandise-A 25,000
Merchandise-B 25,000 92,650 Sales
Expenses 4,450 2,800 Inventory taken
41,000 Profit - excess credit

5. D
Solution:
The joint operation profit is computed as follows:

Joint operation
Account with LL 16,000 18,000 Account with NN
Account with MM 32,000 42,000 Unused supplies
12,000 Profit - excess credit

The joint operation profit is distributed to the joint operators as follows:

LL MM NN Total
Bonus to LL 1,200 1,200
Allocation of
balance 3,600 3,600 3,600 10,800
As allocated 4,800 3,600 3,600 12,000

The net cash settlements are computed as follows:

Joint operation - LL
Balance 16,000
Sh. In profit 4,800 42,000 Inventory taken
21,200 Payment - excess credit

Joint operation MM
Balance 32,000
Sh. In profit 3,600 - Inventory taken
Receipt - excess debit 35,600

Joint operation NN
18,000 Balance
Sh. In profit 3,600 - Inventory taken
14,400 Payment - excess credit

From the above computations:

LL has a net payment of 21,200.
MM has a net receipt of 35,600.
NN has a net payment of 14,400.

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Since LL is the designated manager, he holds the joint operations
cash. Therefore, LL is the one who will distribute the final cash
settlement. The final settlement is as follows:
LL shall pay MM his net receipt of 35,600. In turn, LL shall
receive NNs net payment of 14,400.

PROBLEM 5-6: EXERCISES COMPUTATIONAL

1. Solutions:
Case #1: No separate books

Requirement (a):
Books of Tom Books of Jerry
a. Joint operation 400 Joint operation 400
Payable to Jerry 400 Inventory 400

b. Joint operation 500 JO - Cash 500

Cash 500 Payable to Tom 500

c. No entry Joint operation 200

JO Cash 200
d. Receivable from Chicken 900 JO - Cash 900
Joint operation 900 Joint operation 900
e. No entry Joint operation 100
JO - Cash 100

Requirement (b):
Joint operation
Merchandise contributions (a) 400
Purchases (c) 200 900 Sales (d)
Expenses (e) 100 100 Unsold invty. (g)
300 Credit balance - Profit

Requirement (c):

Joint operation - Tom

Cash contribution (b) 500
Share in profit (300K x 50%) 150 200 Cash taken (h)
Cash receipt (Dr. bal.) 450

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 Joint operation - Jerry
Mdse. contribution (a) 400
Share in profit (300K x 50%) 150 100 Inventory taken (g)
Cash receipt (Dr. bal.) 450

Reconciliation:
JO - Cash
Cash contribution (b) 500
Sales (d) 900 200 Additional purchases (c)
100 Expenses paid (e)
200 Cash taken back (h)
Cash balance (Dr. bal.) 900

JO - cash balance 900

Allocation:
Cash distribution to Tom 450
Cash distribution to Jerry 450
Total 900
As allocated -

Requirement (d):

Books of Tom Books of Jerry

g. Payable to Jerry 100 Inventory 100
Joint operation 100 Joint operation 100
h. Cash 200 Payable to Tom 200
Joint operation 200 JO - Cash 200
i. Joint operation 300 Joint operation 300
Payable to Jerry 150 Payable to Tom 150
Sh. in profit 150 Sh. in profit 150
j. Cash (squeeze) 450 Cash (squeeze) 450
Payable to Jerry 450 Payable to Tom 450
Receivable from Jerry 900 JO cash 900

Requirement (e):

Toms books:
Joint operation - Tom's books
(a) 400
(b) 500 900 (d)
(i) 300 100 (g)
200 (h)
-

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 Receivable from Jerry
(d) 900
900 (j)
-

Payable to Jerry
(g) 100 400 (a)
(j) 450 150 (i)
-

Jerrys books:

Joint operation - Jerry's books

(a) 400
(c) 200 900 (d)
(e) 100 100 (g)
(i) 300
-

Payable to Tom
500 (b)
(h) 200 150 (i)
(j) 450
-

JO - Cash
(b) 500
(d) 900 200 (c)
100 (e)
200 (i)
900 (j)
-

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Case #2: Separate books

Requirement (a):
Books of Tom Books of Jerry Joint operations
Books
a. No entry Int. in JO 400 Inventory 400
Inventory 400 Jerry, capital 400
b. Int. in JO 500 No entry Cash 500
Cash 500 Tom, cap. 500
c. No entry No entry Inventory 200
Cash 200
d. No entry No entry Cash 900
Sales 900

COGS 500
Inventory 500
e. No entry No entry Expenses 100
Cash 100

Requirement (b):
Sales 900
Cost of sales (400 + 200 -100) (500)
Gross profit 400
Expenses (100)
Profit 300

Requirement (c):
Int. in JO Tom
Cash contribution (b) 500
Share in profit
150 200 Cash taken(h)
(300K x 50%)
Cash receipt (Dr. bal.) 450

Int. JO - Jerry
Merchandise contribution (a) 400
Share in profit (300K x 50%) 150 100 Inventory taken (g)
Cash receipt (Dr. bal.) 450

Reconciliation:
Cash
Cash contribution (b) 500
Sales (d) 900 200 Additional purchases (c)
100 Expenses paid (e)
200 Unused cash (h)

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Cash balance (Dr. bal.) 900

Alternative solution:

Tom, capital
500 Cash contribution (b)
Cash withdrawal (h) 200 150 Share in profit (300K x 50%)
450 Cash receipt (Cr. bal.)

Jerry, capital
400 Merchandise contribution (a)
Inventory taken (g) 100 150 Share in profit (300K x 50%)
450 Cash receipt (Cr. bal.)

2. Solutions:
Requirement (a):
Joint operation
Mdse. contributions
120,000
(100K + 20K)
Purchases 150,000 900,000 Sales (d)
Expenses 180,000 30,000 Unsold invty. [(100K + 20K x 1/4]
480,000 Credit balance - Profit

Requirement (b):
A B C Total
Amount being allocated 480,000
Allocation:
1. Bonus (480K x 10%) 48,000 48,000
2. Allocation of remaining profit
432,000
[(480K - 48K) 3] 144,000 144,000 144,000
As allocated 192,000 144,000 144,000 480,000

Requirement (c):
Int. in JO - A
Mdse. Contribution 120,000
Sh. In profit 192,000 30,000 Mdse. Taken
Cash receipt (Dr. bal.) 282,000

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 Int. in JO B
Cash contribution 150,000
Sh. In profit 144,000
Cash receipt (Dr. bal.) 294,000

Int. in JO C
Cash contribution 180,000
Sh. In profit 144,000
Cash receipt (Dr. bal.) 324,000

3. Solution:

Requirement (a):
Joint operation

Purchases 1,800,000 2,700,000 Sales

Expenses 50,000
850,000 Credit balance - Profit

OR

Sales 2,700,000
Cost of sales (1M + 800K 200K unsold) (1,600,000)
Gross profit 1,100,000
Expenses (50,000)
Loss from unsold tickets (200,000)
Profit 850,000

Requirement (b):

Ey Bee Total
Amount being allocated 850,000
Allocation:
1. 5% commission on purchases 50,000 40,000 90,000
2. 20% commission on sales 240,000 300,000 540,000
2. Allocation of remaining profit
220,000
(850K - 90K - 540K) / 2 110,000 110,000
As allocated 400,000 450,000 850,000

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Requirement (c):
Int. in JO - Ey
Purchases 1,000,000
Expenses 20,000
Sh. In profit 400,000 1,200,000 Sales
Cash receipt (Dr. bal.) 220,000

Int. in JO Bee
Purchases 800,000
Expenses 30,000
Sh. In profit 450,000 1,500,000 Sales
Cash payment
220,000 (Cr. bal.)

In the final settlement, Bee pays Ey 220,00.

4. Solution:
Investment in Joint Venture
beg. 300,000
Sh. In profit Sh. In dividends
200,000 160,000
(500K x 40%) (400K x 40%)
340,000 end

5. Solutions:

Feb. 6 Held for Trading Securities 40,000

Commission expense 225
Cash ............................. 40,225

Mar. 31 Investment in Joint Venture 600,000

Cash ............................. 600,000

June 20 Cash (1,000 x 2.20) ............... 2,200

Dividend income ................. 2,200

June 30 Investment in Joint Venture 12,000

Share in profit of Joint Venture 12,000
(30% x 40,000)

Sept. 4 Investment in FVOCI Securities

[(4,000 x 30) + 600] ............ 120,600
Cash ............................. 120,600

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Dec. 31 Held for trading securities 5,000
Unrealized gain (P/L) 5,000
(45 - 40) x 1,000

Unrealized loss (OCI) ......................... 8,600

Investment in FVOCI securities
(28 x 4,000) 120,600 8,600

PROBLEM 5-7: MULTIPLE CHOICE PFRS FOR SMEs

1. D

2. A

3. B

4. D

5. C

6. B

7. D
Solution:
20x1: Fair value less cost to sell (102K 4K) = 98,000 lower than cost of
101K (cost of 100K + transaction cost of 1K).
20x2: Cost of 101,000 = previous carrying amount of 98K + 3K reversal of
impairment loss.
20x3: Fair value less cost to sell (90K 4K) = 86,000 lower than previous
carrying amount of 101K.

8. E at the year-end fair values given in the problem. Costs to sell

are ignored.

9. C

10. D

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