JOINT ARRANGEMENTS

STRAIGHT PROBLEMS

Problem 1. JOINT OPERATIONS – UNINCORPORATED ENTITY COMBINED STATEMENT OF INCOME AND RETAINED EARNINGS
SHARING OUTPUT TO OPERATORS.
Revenues P500,000
On January 1, 2020, NIKKI CORPORATION and CANDICE, INC. Expenses 385,000
establish a joint arrangement to manufacture a product. Each Net income P 115,000
company has a 50% interest in the activity and will share on Retained earnings, Jan 1, 2020
total output equally. Cash dividend paid (38,400)

NIKKI’s initial contribution consisted of P4,000,000 cash and Retained earnings, Dec 31, 2020 P 76,600
CANDICE contributed machinery that was carried in its books at
P3,800,000. The fair value of the machinery at that date was BALANCE SHEET
P4,000,000. During the first year of operation both parties Cash P51,600 Liabilities P725,000
contributed a further P6,000,000 each. Accounts
receivable 400,000 Share capital 2,500.000
On December 31, 2020, the manager of the joint operations Inventory 625,000 Retained
provided the following statements: earnings 76,600
Plant, Property,
Costs incurred for the year ended December 31, 2020: Equipt. 2,350,000
Accum
Wages P3,680,000 Depreciation ( 125,000) ________
Supplies 5,600,000 Total P3,301,600 Total P3,301,600
Overheads 4,400,000
Depreciation 1,120,000 The financial statements of MAXINNE CORPORATION, one of the
P14,800,000 venturers, for the same period follow:
Cost of FG inventory 10,800,000
Work-in-Process, 12/31/20 P 4,000,000 Revenues P10,800,000
Expenses 9,280,000
Receipts and Payments for year ended December 31, 2020: Profit 1,520,000
Share capital 3,000,000
Receipts: Retained Earnings 920,000
Original contributions P 4,000,000 Liabilities 840,000
Additional contributions 12,000,000 Totals P6,280,000
Total P 16,000,000
Cash P 529,200
Payments: Accounts receivable 480,000
Machinery (1/2/20) P 1,600,000 Inventory 840,000
Wages 3,600,000 Plant, Property, and Equipment 3,900,000
Supplies 6,000,000 Accumulated Depreciation (700,000)
Overheads 4,200,000 Investment in Joint Venture 1,230,800
Operating expenses 400,000 15,800,000 Totals P6,280,000
Closing cash balance P 200,000
Required:
Assets and liabilities at December 31, 2020 1. Prepare journal entries in the books of MAXINNE
Assets: CORPORATION using the Equity Method.
Cash P 200,000
2. Prepare the financial statements for 2020 for MAXINNE
Machinery P5,600,000
CORPORATION.
Accum Depreciation 1,120,000 4,480,000
Supplies 800,000
Problem. 3
Work-in-process 4,000,000
JOINT VENTURE – THE VENTURER IS AN SME.
Total assets P 9,480,000
1. On January 1, 2020 SME JJ CORPORATION acquired 25%
of the equity of ARMSTRONG CORPORATION for P102,400.
Liabilities:
SME Jj shares in the joint control over the relevant
Accrued wages P 80,000
activities of the joint venture in relation to its operations.
Accounts payable 600,000
Transaction costs of 2% of the purchase price of the shares
Total liabilities P 680,000
were incurred by SME JJ.
2. On December 31, 2020 ARMSTRONG CORPORATION
Net assets P 8,800,000
declared dividends of P14,400. These dividends are to be
paid by L in 2021.
Required:
3. For the year ended December 31, 2020, ARMSTRONG
1. Prepare the journal entries in the records of NIKKI
CORPORATION recognized a profit of P48,000.
CORPORATION and CANDICE, INC. in relation to the joint
4. Published price quotations do no exist for the shares of
operation.
ARMSTRONG CORPORATION. Using appropriate valuation
techniques SME JJ determined the fair value of its
Problem 2 – JOINT VENTURE – INCORPORATED ENTITY
investments in L CORPORATION at December 31, 2020 as
SHARING PROFITS TO VENTURERS.
P112,000. Costs to sell are estimated at 5% of the fair
On January 1, 2020, MAXINNE CORPORATION signed a joint
value of the investment. SME J does not prepare
venture agreement with another venturer, ALETT ENTERPRISES.
consolidated financial statements because it does not have
for the production of a special product. BLANCHE COMPANY is
any subsidiary (ies).
established to carry on the business venture, with each venturer
contributing P1,250,000 for equal shares in the company’s
Required:
200,000 P12.50 par value shares. They will share profits
Prepare appropriate journal entries in the books of SME JJ for
equally.
the ARMSTRONG CORPORATION under each of the three (3)
methods.
On December 31, 2020, the financials of BLANCHE COMPANY,
the joint venture entity, follows:

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 MULTIPLE CHOICE

HORNETS, INC. and ANGULAR COMPANY are venturers P800,000 for equal shares in the company’s 128,000
in a joint arrangement sharing control and profits P12.50 par value shares. They will share profits equally.
equally. They contributed P500,000 each to establish
Joint Venture JJJ early in 2020. The Joint Venture paid On December 31, 2020, the financials of DEF Corp
cash dividends of P36,000 and reported a net income of follow:
P144,000 during the year. COMBINED STATEMENT OF INCOME AND RETAINED
On the other hand, HORNETS paid cash dividends of EARNINGS
P18,000 and reported a net income of P72,000 during Revenues P320,000
the year. Its Retained Earnings at the beginning of the Expenses 246,400
year is P100,000. Net income P 73,600
1. At what amounts will HORNETS report in its Retained earnings, Jan 1, 2020 ___-____
December 31, 2020 balance sheet the Investment in Retained earnings, Dec 31, 2020 P 92,000
Joint Venture and Retained Earnings accounts,
BALANCE SHEET
respectively?
December 31, 2020
a. P503,600 and P200,800
b. P500,720 and P200,080 Cash P57,600 Liabilities P464,000
c. P554,000 and P226,000 Accounts Share 1,600,000
d. P522,320 and P161,200 receivable 256,000 capital
Inventory 400,000 Retained
On January 1, 2020, ELASTIC COMPANY and FIREBRAND earnings 73,600
CORPORATION have entered into a joint operation, Plant, Property,
sharing control on a 6:4 ratio, They further agreed that Equipt. 1,504,000
contributions and profits will be in the same proportion. Accum ________
ELASTIC contributed cash while FIREBRAND contributed Depreciation ( 80,000)
equipment at its cost of P288,000 and an estimated Total P2,137,600 Total P 2,137,600
remaining economic life of 5 years. The operators’ total
initial contribution recorded in the books of the joint The financial statements of ABC Company for the same
operation is P800,000. No other transaction had period, before the adjustment for its share of DEF’s net
transpired between the operators and the joint operation income, follow:
during 2020. Revenues P6,912,000
Expenses 5,939,200
ELASTIC and FIREBRAND also agreed that MUTUAL Profit 972,800
CONSENT is necessary for all management decisions Share capital 1,920,000
regarding the joint undertaking regardless of the agreed Retained Earnings 588,800
ratios aforementioned. Liabilities 537,600
Totals P4,019,200
On December 31, 2020, the joint operation reported a
cash balance of P288,000 and equipment at a net Cash P 326,400
carrying value of P256,000 in its balance sheet. Accounts receivable 307,200
Inventory 537,600
2. The journal entry recorded by the operators in their Plant, Property, and
respective books on January 1, 2020 will not include Equipment 2,496,000
Accumulated (448,000)
a. A debit to Cash in JO of P288,000 by Elastic
Depreciation
b. A debit to Eqpt in JO of P192,000 by Elastic
Investment in Joint 800,000
c. A debit to Cash in JO of P192,000 by Firebrand Venture
d. A credit to gain on sale of P32,000 by Firebrand Totals P4,019,200

3. The adjusting entry that will be recorded by the 5. Determine the amount of retained earnings to be
operators in their respective books on December 31, reported by ABC in its balance sheet at December
2020 will not include 31, 2020:
a. P 588,800 c. P3,518,400
a. a credit to Cash in JO of P115,200 by Elastic
b. P 625,600 d. P1,598,400
b. a credit to Acc Depn in JO of P23,040 by
Firebrand 6. Determine the balance of the Investment in JV to be
c. a credit to Cash in JO of P76,800 by Firebrand reported by ABC in its balance sheet at December
d. a credit to Acc Depn in JO of P32,000 by Elastic 31, 2020:
a. P 0 c. P 800,000
4. The Equipment in JO (net of Accumulated b. P 836,800 d. P 832,256
Depreciation) to be recognized by Firebrand in its
On January 1, 2020, SME A acquired a 35% equity of Y
December 31, 2020 balance sheet is
CORPORATION for P74,240. SME A shares in the joint
a. P92,160 c. P102,400 control of the relevant activities of Y CORPORATION in
b. P90,000 d. P174,400 relation to its profitable operations. Transaction costs of
5% of the purchase price of the shares were incurred by
On January 1, 2020, ABC Company. signed a joint SME A.
venture agreement with another venturer for the
production of CDs. DEF Corp. is established to carry on On December 31, 2020, Y CORPORATION declared and
the business venture, with each venturer contributing paid dividends of P19,200.

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For the year ended December 31, 2020 Y CORPORATION a. P 83,200 c. P 52,416
recognized a loss of P53,760. b. P 74,240 d. P 75,712

Published price quotations do not exist for the shares of MENCHU and OSANG in a joint venture, contributed
Y CORPORATION. Using appropriate valuation techniques P19,200 each in order to purchase canned goods which
SME A determined the fair value of its investment in Y were sold by lots at a closing-out sale. They agreed to
CORPORATON at December 31, 2020 as P83,200. Costs divide their profits equally and each shall record her
to sell are estimated at 9% of the fair value of the purchases, sales and expenses in his own books. After
investment. SME A does not prepare consolidated selling almost all the canned goods, they wind up their
financial statements because it does not have any venture. The following are the venture transactions:
subsidiary.
Joint Venture credit balances were OSANG, (P15,360)
7. What is the profit (loss) to be recognized by SME A and MENCHU, (P13,440). Expenses paid from Joint
in 2020 from entity Y CORPORATION under the fair Venture cash were P1,920 by OSANG and P2,496 by
value method? MENCHU. Cost of unsold canned goods which OSANG
a. P10,560 c. P11,968 and MENCHU agreed to assume were P576 and P896
b. P 7,680 d. P 2,880 respectively.
13. The total sales of the joint venture were:
8. What is the profit (loss) to be recognized by SME A a. P 71,616 c. P 68,672
in 2020 from Y CORPORATION using the cost model? b. P 67,200 d. P 76,224
a. P 4,480 c. P(19,200)
b. P(13,747) d. P( 947) 14. In the final settlement, the amount due to OSANG
including her investment was:
9. What is the profit (loss) to be recognized by SME A a. P33,760 c. P33,024
in 2020 from Y CORPORATION using the equity b. P32,832 d. P33,984
model?
a. P (18,816) c. P 3,315 A, B, and C are joint operators of JOINT OPERATION D
b. P 6,272 d. P (1,485) (each having an equal share in interest). On January 1,
2020, A sells equipment having a book value of P40,960
10. What is the amount of Investment in Y to the OPERATION for P102,400. The equipment had an
CORPORATION to be recognized by SME A in its estimated useful economic life of 5 years at that date.
2020 balance sheet, using the cost model? 15. At what amount will A show this equipment at its
a. P 75,712 c. P 74,240 balance sheet at January 1, 2020?
b. P 77,952 d. P 75,392 a. P13,654 c. P17,067
b. P34,134 d. P 0
11. What is the amount of Investment in Y
CORPORATION to be recognized by SME A in its 16. At what amount will A show this equipment at its
2020 balance sheet using the fair value model? balance sheet at December 31, 2020?
a. P 75,712 c. P 52,416 a. P27,306 c. P34,134
b. P 83,200 d. P 74,240 b. P10,922 d. P13,654

12. What is the amount of Investment in Y