Chapter 6

I. Requirement (a) Journal entries

A’s Book B’s Book C’s Book

a. Joint operation 420 Joint operation 420 Joint operation 420
Inventory 400 Payable to A 420 Payable to A 420
Cash 20

b. Joint operation 400 Joint operation 400 JO-cash 400

Payable to B 400 Cash 400 Payable to B 400

c. Joint operation 100 Joint operation 100 Joint operation 500

Payable to C 100 Payable to C 100 JO-cash 400
Accounts payable 100

d. Receivable from C 1,60 Receivable from C 1,600 JO-cash 1,60

0 0
Joint Operation 1,60 Joint Operation 1,600 Joint Operation 1,600
0

e. Joint Operation 110 Joint Operation 11o Payable to C 110

Payable to C 110 Payable to C 110 Cash 110

Requirement (b) compute for the P/L

Joint Operation
(a) Mdse. contribution of A 420
(c) Purchases (w/ C’s contrib.) 500 1,600 (d) sales
(e) expenses 110 60 unsold mdse.
630-- Profit

Profit Allocation (equally): (6303) = A, 210; B, 210; C, 210

Checking:
Sales 1,600
Cost of goods sold:
Inventory beg. 420
Purchases 500
Total GAFS 920
Inventory end ( 60) (860)
Gross Profit 740
Expenses (110)
Profit 630
Requirement (c) Cash settlements

Payable to A Payable to B Payable to B

420 (a) 400 (b) 100 (c)
210 P/L 210 P/L 110 €
630 receipt 610 receipt 60 210 P/L
360 receipt
II. Separate books are maintained for the joint operation

(a) Journal Entries

A’s Book Joint Operation’s book

a. Joint operation 420 Inventory 420
Inventory 400 A, Capital 420
Cash 20

B’s Book
b. Joint operation 400 Cash 400
Cash 400 B, Capital 400

C’s Book
c. Joint operation 100 Purchases 500
Accounts payable 100 Capital 400
C, Capital 100

d.  Cash 1,600
 Sales 1,600
C’s Book
e. Joint Operation 110 Expenses 110
Payable to C 110 C, Capital 110
(b) Compute for the P/L

Joint Operation
(a) Mdse. contribution of A 420
(c) Purchases (w/ C’s contrib.) 500 1,600 (d) sales
(e) expenses 110 60 unsold mdse.
630-- Profit

Profit Allocation (equally): (6303) = A, 210; B, 210; C, 210

Checking:
Sales 1,600
Cost of goods sold:
Inventory beg. 420
Purchases 500
Total GAFS 920
Inventory end ( 60) (860)
Gross Profit 740
Expenses (110)
Profit 630
Requirement (c) Cash settlements

Payable to A Payable to B Payable to B

420 (a) 400 (b) 100 (c)
210 P/L 210 P/L 110 €
630 receipt 610 receipt 60 210 P/L
360 receipt

2.
 Investment in Joint Venture
Initial investment 1,000,0000
240,000 (720k x 33.33%)
760,000 end carrying amount

Problem 5

Case 1: No separate records are maintained

1. (a) journal entries (amounts in ‘000’s)

Small’s Book Medium’s Book Large’s Book

a. Joint operation 100 Joint operation 100 JO-cash 100
Cash 100 Payable to Small 100 Payable to Small 100

b. Joint operation 120 Joint operation 120 JO-cash 400

Payable to Medium 120 Inventories 120 Payable to Medium 400

c. Joint operation 80 Joint operation 80 JO-cash 80

Payable to Large 80 Payable to Large 80 Cash 80

d. Joint operation 160 Joint operation 160 Joint operation 180

Payable to Large 160 Payable to Large 160 Cash 20
Accounts Payable, L 160

e. Receivable from Large 900 Receivable from Large 900 JO-cash 900
Joint Operation 900 Joint Operation 900 Joint Operation 900

f. - - Joint Operation 240

- JO-cash 240
(b) Compute for the P/L

Joint Operation
(a) Mdse. contribution of A 120,000
(c) Purchases (w/ Larges’s contrib.) 180,000 900,000 (d) sales
(e) expenses 240,000 60 ,000 unsold mdse.
420,000-- Profit

Checking:
Sales 900,000
Cost of goods sold:
Inventory beg. 120,000
Purchases 180,000
Total GAFS 300,000
Inventory end ( 60,000) (240,000)
Gross Profit 660,000
Expenses (240,000)
Profit 420,000
Requirement (c) Cash settlements

Small Medium Large Total

Profit before salary and bonus 420,000
1. Salary   6,000 6,000
2. Bonus (420k-60) – [414- (414k/1.15%)   54,000 54,000
3. Allocation of profit [420k-(6k+54k) 3] 120,000 120,000 120,000 360,000
120,000 120,000 180,000 420,000

Joint Operation- Small Joint Operation -Medium Joint Operation-Large

(a) 100,000 (b) 120,000 (c) 80,000
120,000 120,000 160,000 60,000
Receipt 220,000 Receipt 240,000 Receipt 180,000

Checking:
JO- Cash
Small 100,000 20,000 payable to Large
Large 80,000 180,000 purchases
Sales 900,000 240,000 expenses
220,000 settlement to S
240,000 settlement to M
180,000 Balance—settlement to
Large Receipt
Case 2 (a) journal entries

Small’s Book Joint Operation’s book

a. Joint operation 100,000 Cash 100,000
Cash 100,000 Small, Capital 100,000

Medium’s Book
b. Joint operation 120,000 Inventories 120,000
Inventories 120,000 Medium, Capital 120,000

Large’s Book
c. Joint operation 80,000 Cash 80,000
Inventories 80,000 Large, Capital 80,000

Large’s Book
d. Joint operation 160,000 Inventories 180,000
Accounts payable 160,000 Cash 20,000
Large, Capital 160,000

e.  Cash 900,000
 Sales 900,000

f. .  Expenses 240,000
 Cash 240,000

(b) Compute for the P/L

Joint Operation
(a) Mdse. contribution of A 120,000
(c) Purchases (w/ Larges’s contrib.) 180,000 900,000 (d) sales
(e) expenses 240,000 60 ,000 unsold mdse.
420,000-- Profit
Checking:
Sales 900,000
Cost of goods sold:
Inventory beg. 120,000
Purchases 180,000
Total GAFS 300,000
Inventory end ( 60,000) (240,000)
Gross Profit 660,000
Expenses (240,000)
Profit 420,000
Requirement (c) Cash settlements

Small Medium Large Total

Profit before salary and bonus 420,000
1. Salary   6,000 6,000
2. Bonus (420k-60) – [414- (414k/1.15%)   54,000 54,000
3. Allocation of profit [420k-(6k+54k) 3] 120,000 120,000 120,000 360,000
120,000 120,000 180,000 420,000

Joint Operation- Small Joint Operation -Medium Joint Operation-Large

(a) 100,000 (b) 120,000 (c) 80,000
120,000 120,000 160,000 60,000
Receipt 220,000 Receipt 240,000 Receipt 180,000

Checking:
JO- Cash
Small 100,000 20,000 payable to Large
Large 80,000 180,000 purchases
Sales 900,000 240,000 expenses
220,000 settlement to S
240,000 settlement to M
180,000 Balance—settlement to
Large Receipt