UNIT 10: JOINT ARRANGEMENTS

Problem 1. JOINT OPERATIONS – UNINCORPORATED ENTITY SHARING OUTPUT TO OPERATORS. (No Separate Records)

The following are the transactions of a joint operation formed by A, B and C during a year:
a. A contributed cash of ₱100 and merchandise costing ₱200.
b. B contributed merchandise costing ₱400. Freight-in paid by B is ₱20.
c. C made purchases amounting to ₱100 using the cash contributed by A.
d. C paid expenses of ₱200 using its own cash.
e. C made total sales of ₱800. All the merchandise was sold except one-half of those contributed by B.
f. C is appointed as the manager of the joint operation. As compensation, C is entitled to a ₱30 salary plus bonusof 25% on
profit after salary and bonus.
g. Interest of 10% per annum is allowed to A and B’s capital contributions.
h. C is charged for the cost of any unsold inventory. Profit or loss after necessary adjustments shall be dividedequally.

Required:
1. How much is the profit or loss after salaries and bonus of the joint operation?
2. How much is A’s cash settlement?

Problem 2. JOINT OPERATIONS – UNINCORPORATED ENTITY SHARING OUTPUT TO OPERATORS. (With Separate Records)

On January 1, 2020, NIKKI CORPORATION and CANDACE, INC. establish a joint arrangement to manufacture a product. Each company
has a 50% interest in the activity and will share on total output equally.

NIKKI’s initial contribution consisted of P4,000,000 cash and CANDACE contributed machinery that was carried in its books at P3,800,000.
The fair value of the machinery at that date was P4,000,000. During the first year of operation both parties contributed a further
P6,000,000 each.

On December 31, 2020, the manager of the joint operations provided the following statements:

Costs incurred for the year ended December 31, 2020:

Wages P3,680,000
Supplies 5,600,000
Overheads 4,400,000
Depreciation 1,120,000
P14,800,000
Cost of FG inventory 10,800,000
Work-in-Process, 12/31/20 P 4,000,000

Receipts and Payments for year ended December 31, 2020:

Receipts:
Original contributions P 4,000,000
Additional contributions 12,000,000
Total P 16,000,000

Payments:
Machinery (1/2/20) P 1,600,000
Wages 3,600,000
Supplies 6,000,000
Overheads 4,200,000
Operating expenses 400,000 15,800,000
Closing cash balance P 200,000

Assets and liabilities at December 31, 2020

Assets:
Cash P 200,000
Machinery P5,600,000
Accum Depreciation 1,120,000 4,480,000
Supplies 800,000
Work-in-process 4,000,000
Total assets P 9,480,000

Liabilities:
Accrued wages P 80,000
Accounts payable 600,000
Total liabilities P 680,000

Net assets P 8,800,000

Required:
1. Prepare the journal entries in the records of NIKKI CORPORATION and CANDACE, INC. in relation to the joint operation.

Problem 3 – JOINT VENTURE – INCORPORATED ENTITY SHARING PROFITS TO VENTURERS.

On January 1, 2020, MAXINNE CORPORATION signed a joint venture agreement with another venturer, ALETT ENTERPRISES. for the
production of a special product. BLANCHE COMPANY is established to carry on the business venture, with each venturer contributing
P1,250,000 for equal shares in the company’s 200,000 P12.50 par value shares. They will share profits equally.

On December 31, 2020, the financials of BLANCHE COMPANY, the joint venture entity, follows:

COMBINED STATEMENT OF INCOME AND RETAINED EARNINGS

Revenues P500,000
Expenses 385,000
Net income P 115,000
Retained earnings, Jan 1, 2020
Cash dividend paid (38,400)

Retained earnings, Dec 31, 2020 P 76,600

BALANCE SHEET
Cash P51,600 Liabilities P725,000
Accounts
receivable 400,000 Share capital 2,500.000
Inventory 625,000 Retained
earnings 76,600
Plant, Property,
Equipt. 2,350,000
Accum
Depreciation ( 125,000) ________
Total P3,301,600 Total P3,301,600

The financial statements of MAXINNE CORPORATION, one of the venturers, for the same period follow:

Revenues P10,800,000
Expenses 9,280,000
Profit 1,520,000
Share capital 3,000,000
Retained Earnings 920,000
Liabilities 840,000
Totals P6,280,000

Cash P 529,200
Accounts receivable 480,000
Inventory 840,000
Plant, Property, and Equipment 3,900,000
Accumulated Depreciation (700,000)
Investment in Joint Venture 1,230,800
Totals P6,280,000

Required:
1. Prepare journal entries in the books of MAXINNE CORPORATION using the Equity Method.
2. Prepare the financial statements for 2020 for MAXINNE CORPORATION.

Problem. 3 - JOINT VENTURE – THE VENTURER IS AN SME.

1. On January 1, 2020 SME JJ CORPORATION acquired 25% of the equity of ARMSTRONG CORPORATION for P102,400. SME JJ shares
in the joint control over the relevant activities of the joint venture in relation to its operations. Transaction costs of 2% of the
purchase price of the shares were incurred by SME JJ.
2. On December 31, 2020 ARMSTRONG CORPORATION declared dividends of P14,400. These dividends are to be paid by L in 2021.
3. For the year ended December 31, 2020, ARMSTRONG CORPORATION recognized a profit of P48,000.
4. Published price quotations do no exist for the shares of ARMSTRONG CORPORATION. Using appropriate valuation techniques SME JJ
determined the fair value of its investments in L CORPORATION at December 31, 2020 as P112,000. Costs to sell are estimated
at 5% of the fair value of the investment. SME J does not prepare consolidated financial statements because it does not have any
subsidiary/ies.

Required:
Prepare appropriate journal entries in the books of SME JJ for the ARMSTRONG CORPORATION under each of the three (3) methods.