CHAPTER-6 Advance Accounting Solman

Joint Venture

103

CHAPTER 6 SOLUTIONS TO MULTIPLE CHOICES

6-1: a Assets per Jessica Company- balance sheet Jessica’s proportionate interest in assets of JV (50%) Total assets of Jessica 6-2: a

P3,550,000 1,000,000 P4550,000

Total liabilities only of Jenny Co.

6-3: b 6-4: b Investment of Heart Profit share: Sales Cost of sales (150,800 ÷ 125%) Gross profit Expenses Net Profit Profit/loss ratio Balance of investment in JV

P80,000 150,800 120,640 30,160 10,000 20,160 x 40%

8,064 P88,064

6-5: a Cash Merchandise inventory Accounts receivable Total assets Sweet Co’s, proportionate interest Sweet Company’s share in total asset

P190,000 29,360 150,800 370,160 x 60% P222,096

6-6: a Sales Cost of sales Purchases Merchandise inventory, end (50% of P10,000)

7,200 P10,000 __5,000

_5,000

Gross profit Expenses

2,200 ___500

Net profit

P 1,700

104 Chapter 6

6-7: b Original investment (cash) Profit share (P1,700 / 2)

P10,000 ___850

Balance of Investment account

P10,850

Joint venture account before profit distribution (credit balance) Unsold merchandise

P 9,000 __2,500

Joint venture profit before fee to Salas

P11,500

Joint venture profit after fee to Salas (P11,500 / 115%)

P10,000

6-8: a

6-9: b Fee of Salas (P10,000 x 15%) Profit share of Salas (P10,000 x 25%)

P 1,500 _2,500

Total

P 4,000

6-10: b Salas

Salve

Balance before profit distribution Profit share:Sabas (P10,000 x 40%) Salve (P10,000 x 35%)

P 500 (dr) P 2,000 (cr) 4,000 ______ _3,500

Balance

P 3,500 (cr) P 5,500 (cr)

6-11: d Joint venture account balance before profit distribution (debit) Joint venture profit (P4,500 x 3)

P 6,000 _13,500

Cost of unsold merchandise (inventory) taken by Dante

P19,500

Edwin Capital: Debits: Balance before profit distribution Credits: Profit share

P14,000 __4,500

6-12: b

Due from Edwin (debit balance)

P 9,500

Joint Venture

105

Settlement to Ferdie (Balance of capital account) Debits: Credits: Balance before profit distribution Profit share

P –0– P16,000 __4,500

Due to Ferdie (credit balance)

_20,500 P20,500

Settlement to Dante (balance of JV Cash account) Debits: Balance before cash settlement Due from Edwin Credits: Due to Ferdie

P30,000 __9,500

Balance

P39,500 _20,500 P19,000

6-13: a JV account balance before profit distribution (cr) Unsold merchandise (required dr balance after profit distribution)

P 4,600 __2,000

Joint venture profit before fee to Jerry Joint venture profit after fee (P6,600 / 110%) Fee to Jerry

P 6,600 __6,000 P 600

6-14: d Harry Capital Balances before profit distribution Profit distribution: Harry P6,000 x 50%) Isaac (P6,000 x 20%)

(P 200)

Cash settlements

P 2,800

Isaac Capital P 1,800

3,000 1,200 P 3,000

6-15: b Sales Cost of sales: Merchandise inventory, beg (contributions) Freight Purchases

P14,000 300 __4,000

Goods available for sale Merchandise inventory, end (P8,300/2)

P18,300 __4,150

Gross profit (loss) Expenses (P400 + P200) Net profit (loss)

P14,000

14,150 (150) __600 P( 750)

6-16: c Contributions to the Joint Venture (P5,000 + P8,000) Loss share (P750 x 50%) Unsold merchandise taken (withdrawal)

P13,000 ( 375) ( 4,150)

Final settlement to jack

P 8,475

106 Chapter 6

SOLUTIONS TO PROBLEMS Problem 6 – 1 Books of Blanco (Manager) JV Cash Joint Venture Cash Ablan Capital

100,000 90,000

Investment in JV Merchandise inventory

90,000

Investment in JV Profit from JV

15,000

90,000

100,000 90,000

Joint Venture JV cash

60,000

Joint Venture JV cash

20,000

JV cash Joint Venture

Books of Ablan

60,000 20,000 200,000 200,000

Computation of JV Profit Total debit to JV Total credit to JV

P170,000 P200,000

Credit balance (Profit)

P 30,000

Distribution Joint Venture Profit from JV Ablan capital Ablan capital JV cash Cash JV cash

30,000 15,000 15,000 105,000 105,000 155,000 155,000

Cash Investment in JV

15,000 105,000 105,000

Joint Venture

107

Problem 6 – 2 Books of the Joint Venture 1.

2.

3. 4.

Computer equipment Ella capital Fabia capital

105,000 60,000 45,000

Purchases Supplies Diaz capital

80,000 2,000

Expenses Diaz capital

9,000

Cash

82,000 9,000 150,000

Sales 5. 6. 7. 8.

150,000

Expenses Cash

30,000

Merchandise inventory Ella capital

20,000

Fabia capital Cash

10,000

30,000 20,000 10,000

Adjusting and closing entries: (a) (b)

Expenses Supplies Sales

500 500 150,000

Income summary

150,000

Income summary Merchandise inventory Purchases

77,500 2,500

Income summary Expenses

39,500

Distribution of profit: Income summary Diaz capital Ella capital Fabia capital

80,000 39,500 33,000 11,000 11,000 11,000

108 Chapter 6

Books of Diaz (1) (2) (3)

Investment in Joint Venture Cash

82,000

Investment in Joint Venture Cash

9,000

82,000 9,000

To record profit share: Investment in Joint Venture Profit from Joint Venture

11,000 11,000

Books of Ella: (1) (2) (3)

Investment in Joint Venture Computer equipment

60,000

Investment in Joint Venture Merchandise inventory

20,000

60,000 20,000

To record profit share: Investment in Joint Venture Profit from Joint Venture

11,000 11,000

Books of Fabia: (1) (2)

Investment in Joint Venture Computer equipment

45,000

Cash

10,000

45,000

Investment in Joint Venture (3)

10,000

To record profit share: Investment in Joint Venture Profit from Joint Venture

11,000 11,000

Joint Venture

109

Problem 6 – 3 (1)

No Separate Set of Joint Venture Books is Used

Books of Duran (Manager) May 1:

7:

Joint Venture Castro capital Cash

12,500

JV cash Bueno capital

10,000

26: Joint Venture JV cash

12,000 500 10,000 9,500 9,500

30: JV accounts receivable Joint Venture

16,000

June 30: JV cash JV accounts receivable

15,000

27: JV cash Joint Venture

16,000 15,000 9,000 9,000

30: To record unsold merchandise taken by Duran: Merchandise inventory Joint Venture

3,000 3,000

To record profit distribution: Joint Venture Profit from JV Bueno capital Castro capital

6,000 2,000 2,000 2,000

To record settlements: Bueno capital Castro capital JV cash Cash Accounts receivable

12,000 14,000 24,500 1,500 1,000

JV accounts receivable

1,000

110 Chapter 6

Books of Bueno May 7:

Investment in Joint Venture Cash

June 30: Investment in Joint Venture Profit from Joint Venture Cash

10,000 10,000 2,000 2,000 12,000

Investment in Joint Venture

12,000

Books of Castro May 1:

Investment in Joint Venture Merchandise inventory

June 30: Investment in Joint Venture Profit from Joint Venture Cash

12,000 12,000 2,000 2,000 14,000

Investment in Joint Venture (2)

14,000

A Separate Set of Books is used:

Books of the Joint Venture May 1:

7:

Merchandise inventory Castro capital Duran capital

12,500

Cash

10,000

12,000 500

Bueno capital 26: Purchases Cash 30: Accounts receivable Sales June 20: Cash

10,000 9,500 9,500 16,000 16,000 15,000

Accounts receivable 27: Cash

15,000 9,000

Sales

9,000

Joint Venture

111

June 30: Closing entries: Sales

25,000 Income summary

Income summary Merchandise inventory, end Merchandise inventory Purchases

25,000 19,000 3,000 12,500 9,500

Distribution of profit: Income summary Bueno capital Castro capital Duran capital

6,000 2,000 2,000 2,000

Settlements to Venturers: Bueno capital Castro capital Duran capital Merchandise inventory Accounts receivable Cash

12,000 14,000 2,500 3,000 1,000 24,500

Books of Duran (Manager/Operator) May 1:

Investment in Joint Venture Cash

June 30: Investment in Joint Venture Profit from Joint Venture Cash

500 500 2,000 2,000 2,500

Investment in Joint Venture Books of Bueno and Castro (Same as in No. 1 requirement)

2,500

112 Chapter 6

Problem 6 – 4 (1)

Books of Seiko (Manager/Operator)

April1:

May:

June:

JV Cash Notes payable – PNB Roles capital Timex capital

August:

34,000 34,000 34,000

Joint venture Cash Rolex capital

64,100

Rolex capital JV cash

30,000

Joint venture Cash Rolex capital Timex capital July:

102,000

16,300 7,800 30,000 111,400 37,400 64,700 9,300

Cash Rolex capital Timex capital JV cash

40,000 15,000 10,000

Joint venture Cash Rolex capital Timex capital

55,770

Cash Rolex capital Timex capital JV cash

45,000 67,000 13,500

Joint venture Cash Rolex capital Timex capital

30,600

65,000 13,970 31,240 10,560

125,500 9,730 16,560 4,310

To record sales: JV cash (P421,000 x 96%)

404,160

Joint venture

404,160

Joint Venture

113

To record payment of loan to PNB: Notes payable – PNB Rolex capital Timex capital Joint venture (Interest expense) JV cash

34,000 34,000 34,000 8,000 110,000

To record distribution of profit: Joint venture Gain from JV (30%) Rolex capital (60%) Timex capital (10%)

134,290 40,287 80,574 13,429

Computed as follows: Total debits tot he JV account Total credits to the JV account

P269,870 _404,160

Gain (credit balance)

P134,290

To record settlement: Cash Rolex capital Times capital JV cash

32,687 128,874 14,099 175,660

Computations: Settlement to Rolex - Balance of capital account: Debits: June July August Payment of note payable

P30,000 15,000 67,000 _34,000

P146,000

Credits: April 1 May June July August Profit share

P34,000 47,800 64,700 31,240 16,560 _80,574

__274,874

Credit balance

P 128,874

114 Chapter 6

Settlement to timex – Balance of capital account Debits: July August Payment of loan

P 10,000 13,500 __34,000

P 57,500

Credits: April 1 June July August Profit share

P 34,000 9,300 10,560 4,310 __13,429

_71,599

Credit balance

P 14,099

Settlement to Seiko – Balance of JV cash account Debits: April 1 Loan proceeds

P102,000 _404,160

P506,160

Credits: June July August Payment of loan

P 30,000 65,000 125,500 _110,000

_330,500

Balance of JV cash Less:Settlement to Rolex Settlement to Timex

P128,874 __14,099

175,660

Settlement to Seiko (2)

_142,973 P 32,687

Partial Balance Sheet June 30, 2008 Books of Seiko (Manager/operator) Current assets: Investment in joint Venture: Joint Venture assets: Cash Joint Venture Less:Equity of other venturers (P116,500 + P43,300) Current liabilities:

P 72,000 _175,500

P247,500 _159,800

87,700

Notes payable – PNB

34,000

Joint Venture

115

Computation of balances as of June 30, 2008: JV Cash April 1 P102,000 Balance P 72,000

P30,000

Joint Venture June

May June

P 64,100 _111,400

Balance P175,500 Notes Payable P34,000

Rolex capital April

June

P 30,000 _______

P 34,000 47,800 __64,700

P 30,000

P146,500 P116,500

Timex capital P34,000 __9,000

April June

P43,300 Problem 6 – 5 Consolidated Balance Sheet Cash Receivables Inventory Other assets

P 61,000 122,000 102,500 __40,500

Total assets

P326,000

Accounts payable Other liabilities Capital stock Retained earnings

P 61,000 96,500 50,000 _118,500

Total liabilities and stockholders' equity

P326,000

Consolidated Income Statement Sales

P246,750

April 1 May June

Cost of sales

_124,750

Gross profit Operating expenses

122,000 __58,250

Consolidated net income

P 63,750

116 Chapter 6

Problem 6 –6 (a)

Journal entries on venture books June 15:

Cash

1,000,000

MacDo Initial contribution at 6% July 1:

Land

1,000,000 2,400,000

Mortgage payable Cash Purchased land for cash and 6% mortgage. Aug 1:

Cash

1,650,000 750,000

1,100,000

MacDo Additional contribution at 6%. Land

1,100,000 950,000

Cash Paid for improvements. Sept 30:

Oct 31:

Nov 30:

Dec 31:

950,000

Mortgage payable Interest expense- Mortgage Cash Reduced mortgage and paid interest.

250,000 3,750

Mortgage payable Interest expense- Mortgage Cash Reduced mortgage and paid interest.

400,000 8,000

Mortgage payable Interest expense- Mortgage Cash Reduced mortgage and paid interest.

300,000 7,500

253,750

408,000

Mortgage payable 200,000 Interest expense- Mortgage 21,000 Cash Reduced mortgage and make semi-annual interest payment.

307,500

221,000

Joint Venture

31:

117

Cash

2,600,000

Sales Sales to date. 31:

31:

31:

31:

2,600,000

Commissions Cash P2,600,000 x 5%

130,000

Expenses Cash Paid expenses

628,100

Interest expense- Venturer MacDo 6% on P1,000,000 from June 15 to December 31, and on P1,100,000 from August 1 to December 31. Sales

130,000

628,100 60,000 60,000

2,600,000

Land (cost of land sold) Expenses Commissions Interest expense- mortgage Interest- venturer Income summary To close income and expense accounts. 31:

31:

1,145,000 628,100 130,000 40,250 60,000 596,650

Income summary MacDo MacEn To divide gain, 60:40.

596,650

MacDo

801,650

596,650 238,660

Cash Payment on account. (b)

801,650

Journal entries on MacDo’s books: June 15:

Investment in Joint Venture Cash Initial contribution.

1,000,000 1,000,000

Aug 1:

Investment in Joint Venture Cash Additional contribution.

1,100,000 1,100,000

118 Chapter 6

Dec 31:

31:

31:

Investment in Joint Venture Interest income Interest earned on cash advanced.

60,000 60,000

Investment in Joint Venture Gain on Joint Venture 60% of gain on venture.

357,990

Cash

801,650

357,990

Investment in Joint Venture Repayment in part of advances. (c)

801,650

MacDo and MacEn Joint Venture Income Statement For the period from June 15 to December 31, 2008 Sales Cost of land sold: Land Improvements Total Unsold land Gross profit Expenses: Advertising and office expenses Interest on mortgage Interest on advances Commissions Net gain Distributions: MacDo (P596,650 x 60%) MacEn (P596,650 x 40%)

P2,600,000 P2,400,000 950,000 P3,350,000 2,205,000 P 628,100 40,250 60,000 130,000

1,145,000 1,455,000

858,350 P 596,650 P 357,990 238,660

Mac Do and MacEn Joint Venture Balance Sheet December 31, 2008 Assets Cash

P 250,000

Land Total Assets

2,205,000 P2,455,000

Liabilities and equity: Mortgage payable MacDo MacEn Total liabilities and equity

P 500,000 1,716,340 238,660 P2,455,000

Joint Venture

119

Venturers equity (interest) Invested Shares: Gain Interest on advances Commissions Total Balances Withdrawn Equity (interests)

MacDo P2,100,000

MacEn

Total P2,100,000

P 357,990 60,000

P238,660

P 596,650 60,000 130,000 786,650 2,886,650 (931,650) P1,955,000

417,990 2,517,990 (801,650) P1,716,340

130,000 368,660 368,660 (130,000) P238,660