Problem

1
A, B, and C agree to sell construction tools for a period of one month. A agrees to construct a stand on the front lawn of C.
C will be paid P3,000 for cleaning up the lawn after the one-month selling period. A, B, and C decide that net income, if
any will be allocated first by the P3,000 payment to C and then by a 40% commission on individual sales. The balance will
be distributed 75% to A and 25% to B. They agree that a cash box will complicate matters and that all purchases and sales
transactions will be out-of-pocket and the responsibility of each individual. Sales to A, B, and C are to be at cost, except
that the ending inventory may be purchased at 50% of cost. All other sales are to be made at 100% mark-up on cost. The
activity of the joint operation are as follows:
a. A construct the stand on the front lawn at a cost of P12,000.
b. A pays for P120,000 for various construction tools. C pays P6,000 for permit to operate the concession
business.
c. A purchases additional construction tools for (P180,000, using P60,000 contributed by B and P120,000 of
personal money.
d. Sales for the period were as follows: A - P204,000; B – P312,000; C – P72,000.
e. C pays P10,800 for office supplies and these are distributed equally between A, B, and C for their personal use
at home.
f. C agrees to pay P6,000 for the stand.
g. The balance of the construction tools inventory was taken by A.

Required:
a. Determine the joint operation net income or loss.
b. Determine the cash settlement between the joint operators.

Problem 2
A, B, and C own adjoining property of 15, 10, and 6 hectares, respectively. It is agreed to pool these property and to
develop, subdivide, and sell the land as a joint operation. It is further agreed that a valuation of P1,300,000 shall be allowed
for each hectare contributed to the firm. Profits are to be divided as follows:
1. A bonus of 10% of selling price is to be allowed to operators making lot sales.
2. Upon conclusion of the operation, a salary of P72,000 is to be allowed to C, who is to act as the manager of the
joint operation. C is to take care of the all the operation’s receipts and expenditures.
3. The net profit after the allowance of bonus and salaries is to be divided equally.

C pays P3,000,000 for improvements that are completed in September. The property is subdivided into 1,550 lots that are
offered for sale as follows:
Number of lots Selling price per lot
Class 1 400 P38,000
Class 2 1,150 P30,000

All the lots are sold for cash in October and November. Sales by member of the joint operation are as follows:
Number of lots sold
Sold by Class 1 Class 2
A 100 300
B 150 400
C 50 100

Salesmen sold the remaining lots. Advertising, salesmen’s salaries and commission as well as miscellaneous selling
expenses paid in November are P684,000. The profit from the joint operation is calculated and A distributed cash to
operators in final settlement.
Instructions:
A. Assuming that separate set of books for the joint operation is not kept, prepare the journal entries to record the
preceding transactions on the books of each operator.
B. Assuming that separate set of books for the venture is kept, prepare the journal entries to record the preceding
transactions on the book of each operator and the book of the joint operation.
Answer Key:
Problem 2
Requirement 1
Books of C, Managing Partner

1. Joint Operation 40,300,000
A 19,500,000
B 13,000,000
Land 7,800,000

2. Joint Operation 3,000,000
Cash 3,000,000
Improvements on land

3. Joint Operation - Cash 35,400,000
Joint Operation 35,400,000
Sales by operators

4. Joint Operation - Cash 14,300,000
Joint Operation 14,300,000
Sales by salesmen

5. Joint Operation 684,000
Joint Operation - Cash 684,000
Operation expenses

6. Joint Operation 72,000
Income from Joint Operation 72,000
Salaries to C as managing partner

Joint Operation 3,540,000
Income from Joint Operation 490,000
A 1,280,000
B 1,770,000
10% commission on own sales

Joint Operation 2,104,000
Income from Joint Operation 701,334
A 701,333
B 701,333
Balance of profit divided equally

7. A 21,481,333
B 15,471,333
Joint Operation - Cash 36,952,666
Final cash settlement


Books of A
1. Joint Operation 40,300,000
Land 19,500,000
B 13,000,000
C 7,800,000

2. Joint Operation 3,000,000
C 3,000,000
Improvements on land

3. C 35,400,000
Joint Operation 35,400,000
Sales by operators

4. C 14,300,000
Joint Operation 14,300,000
Sales by salesmen

 5. Joint Operation 684,000
C 684,000
Venture expenses

6. Joint Operation 72,000
C 72,000
Salaries to C as managing partner

Joint Operation 3,540,000
C 490,000
Income from Joint Operation 1,280,000
B 1,770,000
10% commission on own sales

Joint Operation 2,104,000
C 701,334
Income from Joint Operation 701,333
B 701,333
Balance of profit divided equally

7. Cash 21,481,333
B 15,471,333
C 36,952,666
Final cash settlement


Books of B
1. Joint Operation 40,300,000
A 19,500,000
Land 13,000,000
C 7,800,000

2. Joint Operation 3,000,000
C 3,000,000
Improvements on land

3. C 35,400,000
Joint Operation 35,400,000
Sales by venturers.

4. C 14,300,000
Joint Operation 14,300,000
Sales by salesmen

5. Joint Operation 684,000
C 684,000
Expenses

6. Joint Operation 72,000
C 72,000
Salaries to C as managing partner

Joint Operation 3,540,000
C 490,000
A 1,280,000
Income from Joint Operation 1,770,000
10% commission on own sales

Joint Operation 2,104,000
C 701,334
A 701,333
Income from Joint Operation 701,333
Balance of profit divided equally



 7. A 21,481,333
Cash 15,471,333
C 36,952,666
Final cash settlement

Requirement 2

Books of the Joint Operation
1. Land 40,300,000
A, Capital 19,500,000
B, Capital 13,000,000
C, Capital 7,800,000

2. Land 3,000,000
C, Capital 3,000,000

3. Cash 35,400,000
Sales 35,400,000

4. Cash 14,300,000
Sales 14,300,000

5. Expenses 684,000
Cash 684,000

6. Sales 49,700,000
Land 43,300,000
Expenses 684,000
Income Summary 5,716,000

7. Income Summary 72,000
C, Capital 72,000

Income Summary 3,540,000
A, Capital 1,280,000
B, Capital 1,770,000
Roland, Capital 490,000

Income Summary 2,104,000
A, Capital 701,333
B, Capital 701,333
Roland, Capital 701,334

8. A, Capital 21,481,333
B, Capital 15,471,333
C, Capital 12,063,334
Cash 49,016,000






Books of A
1. Interest in Joint Operation 19,500,000
Land 19,500,000

2. Interest in Joint Operation 1,981,333
Income from Joint Venture 1,981,333

3. Cash 21,481,333
Interest in Joint Operation 21,481,333


Books of B
1. Interest in Joint Operation 13,000,000
 Land 13,000,000

2. Interest in Joint Operation 2,471,333
Income from Joint Operation 2,471,333

3. Cash 15,471,333
Interest in Joint Operation 15,471,333


Books of C
1. Interest in joint operation 7,800,000
Land 7,800,000

2. Interest in Joint Operation 3,000,000
Cash 3,000,000

3. Interest in Joint Operation 1,262,334
Income from Joint operation 1,262,334

4. Cash 12,063,334
Interest in joint operation 12,063,334