Chapter 6

Joint Arrangements

PROBLEM 6-1: 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 6-2: THEORY & COMPUTATIONAL

1. C

2. A

3. C

4. B

5. A

6. B

7. C

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

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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)
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 -

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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:

Cow’s 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)
-

Chicken’s books:

Joint operation - Chicken's

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

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 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 operation’s
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

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

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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.)

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’

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 consolidation concept. Pulham’s 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 6-3: EXERCISES

1. TRUE
2. FALSE
3. TRUE
4. FALSE
5. Solution:

Joint operation - Big

Inventory
Contributions 200K 30K taken
Share in profit – (400K x 35%) 140K
Cash settlement – receipt 310K

6. Solutions:
Requirement (a):
Books of A Books of B Books of C
a. Joint operation 200 Joint operation 200 Joint operation 200
Inventory 200 Payable to A 200 Payable to A 200
b. Joint operation 10 Joint operation 10 Joint operation 10
Cash 10 Payable to A 10 Payable to A 10
c. Joint operation 400 JO – Cash 400 Joint operation 400
Payable to C 400 Payable to C 400 Cash 400
d. Joint operation 100 Joint operation 500 Joint operation 100
Payable to B 100 JO – Cash 400 Payable to B 100
Accounts
payable 100
e. Receivable JV - Cash 1,600 Receivable
from B 1,600 Joint from B 1,600
Joint operation1,600 operation 1,600 Joint operation1,600
f. Joint operation 110 Joint operation 110 Joint operation 110
Payable to B 110 Cash in bank 110 Payable to B 110

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 Books of A Books of B Books of C
h.1 Payable to C 60 Payable to C 60 Inventory 60
Joint operation 60 Joint operation 60 Joint operation 60

to charge unsold to charge unsold to record the receipt of

inventory to C inventory to C inventory from the joint
operation
h.2 Joint operation 840 Joint operation 840 Joint operation 840
Payable to B 280 Payable to A 280 Payable to A 280
Payable to C 280 Payable to C 280 Payable to B 280
Sh. in profit of JO 280 Sh. in profit of Sh. in profit of JO 280
JO 280
to record share in profits to record share in profits
and to close the JO to record share in profits and to close the JO
account in each joint and to close the JO account in each
operator’s books account in each operator’s books
operator’s books

h.3 Payable to B 490 Payable to A 490 Payable to A 490

Payable to C 620 Payable to C 620 Payable to B 490
Cash* 490 Cash* 490 Cash* 620
Receivable JO - Cash 1,600 Receivable
from B 1,600 from B 1,600

to record cash settlement to record cash to record cash

settlement settlement

Requirement (b):
Books of A Books of B Books of C
a. Interest in JO 200 No entry No entry
Inventory 200
b. Interest in JO 10 No entry No entry
Cash 10
c. No entry No entry Interest in JO 400
Cash 400
d. No entry Interest in JO 100 No entry
Accounts
payable 100
e. No entry No entry No entry
f. No entry Interest in JO 110 No entry
Cash 110

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 Separate books of the
Joint Operation
a. Inventory 200
A, Capital 200
b. Freight-in 10
A, Capital 10
c. Cash 400
C, Capital 400
d. Purchases 500
Cash 400
B, Capital 100
e. Cash 1,600
Sales 1,600
f. Expenses 110
B, Capital 110

Books of A Books of B Books of C

h.1 Interest in JO 280 Interest in JO 280 Interest in JO 280
Sh. profit of JO 280 Sh. profit of JO 280 Sh. profit of JO 280

h.2 No entry No entry Inventory 60

Interest in JO 60
h.3 Cash 490 Cash 490 Cash 620
Interest in JO 490 Interest in JO 490 Interest in JO 620
Separate books of the
Joint operation
g. Inventory, end. 60
Sales 1,600
Inventory, beg. 200
Freight-in 10
Purchases 500
Expenses 110
Income summary 840
h.1 Income summary 840
A, Capital 280
B, Capital 280
C, Capital 280
h.2 C, Capital 60
Inventory, end. 60

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h.3 A, Capital 490
B, Capital 490
C, Capital 620
Cash 1,540

7. Solutions:

Requirement (a):
Joint operation
Merchandise – A 400 1,600 Sales – C
Purchases - A's cash 200
Merchandise – B 800 420 Unsold inventory charged to C*
Freight - in – B 40
Expenses – C 400
Profit before salary and bonus
180 - Credit balance
Salaries expense - C 60
Profit after salary but before
120 bonus - Credit balance
Bonus expense** 24
96 Profit after salary and bonus

*Unsold inventory: (P800 plus P40 freight-in) multiplied by one-half.

**Bonus is computed as follows:
P
B = P -
1 + Br
B = 120 – (120 ÷ 1.25%) = 24

Requirement (b):
Profit is allocated to the joint operators as follows:
Allocation to: A B C Totals
Profit before salary and bonus 180
Salary to C 60 (60)
Bonus to C 24 (24)
Profit after salary and bonus 96
Interest on capital:
A - (600 x 10%) 60 (60)

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B - (840 x 10%) 84 (84)
Profit after interests on capital (48)
Allocation (24 ÷ 3) (16) (16) (16) 48
Net share - as allocated 44 68 68 -

Cash settlement is determined as follows:

Joint operation – A
Inventory contributed by A 200
Cash contribution 400
Net share in profit 44
Cash settlement – receipt 644

Joint operation - B
Inventory contributed 800
Freight paid 40
Net share in profit 68
Cash settlement – receipt 908

Joint operation –
C
Cost of
Expenses paid 400 420 inventory taken
Net share in profit 68
Cash settlement - receipt 48

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PROBLEM 6-4: CLASSROOM ACTIVITY

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

Joint operation - Jerry

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

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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):

Tom’s 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)
-

Jerry’s 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 operation’s
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

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

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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

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

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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

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

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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

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 6-5: THEORY

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

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