CHAPTER 6 JOINT ARRANGEMENTS

Answer guide questions 6 to 11.

Problem A page 133. Go over Illustration 1 pages 121 to 122

Addtl data: On July 1 Bert contributed also P100,000 in cash. Change requirements:

a) Entries in the joint venture books to record all the transactions until end of contractual arrangement.

b) Table for distribution of profit or loss.

c) Entries in the individual business books of the venturers, Bert and Oscar.

Problem B page 133 Joint operation with no managing operator. Go over illustration 2 pages 123 to 124.

Change transaction no. 1 to read: Each participant purchased and paid for P500,000 worth of imported
shoes and bags.

Change requirements. Entries of the joint operation recorded in the books of each operator.

T account Joint Operation and determine the balance. Entry with supporting profit
computation.

Equity of each operator using a table. Record cash settlement.

Exercise 7: Instead of giving the transactions, the T account shows already the postings of the transactions
you are to continue making the last three entries: turnover of goods, profit entry, cash

Refer to Problem B but use the alternative method similar to Illustration 3 in the ppt presentation slides 29
and 30 where only transactions participated by an operator are recorded in its books

Required: a) Entries in each operator’s book up to the cash settlement.

b) T Account Joint Operation in each book and show how the profit was determined.

c) Show computation in support of the cash settlement.

Exercise 6 (this is similar to problem B alternative method preceding this no) but instead of giving the
transactions, entries are already posted except for the last 3 entries.

Required after answering the questions, give the last three entries.

Exercise 4 Dan Company , same transactions, but change amounts for some transactions:
1. Each operator contributed P300,000. and
3. Operating expenses paid, P125,000.
Change requirements:
a) In comparative format record in all books transactions 1 to 6 only
 b) T account: Joint Operation, Joint Operation Cash, accounts of Ed and Fe in the books of Dan,
account of Dan in the books of Ed,
Account of Dan in the books of Ed.
c) Record in all books the last two transactions.

Exercise 5 as is.

SOLUTIONS TO ASSIGNMENTS
PROBLEM A.

Cash 100,000

Mdse Invty 156,000

Bert 100,000
O 66,000
X 90,000

AR 240,000
Sales 240,000

Cash 229,500
Sales Discount 4,050
Bad Debts 6,450
AR 240,000

Operating Expenses 58,650

Cash 58,650

O 15,000
X 11,400
Mdse Invty 26,400

Sales 240,000
Mdse Invty 129,600
Sales Discounts 4,050
Expenses 58,650
BD Expense 6,450

Sales P240,000

Sales discounts 4,050

Net sales P235,950

Cost of sales
 (P66,000 + 90,000 – 15,000 – 11,400) 129,600

Gross profit 106,350

Expenses ( 58,650)

Receivables written off ( 6,450)

Net profit before bonus P 41,250

Bonus to B

Bonus = 25% x (P41,250 – bonus)

= P10,312.50 - .25 bonus

1.25 Bonus = P10,312.50

Bonus = P10,312.50 /1.25

= P8,250 8,250

Net profit after bonus P 33,000

The above table is time consuming. Use T account to

determine profit or loss whether Joint Venture or Operation:

Joint Venture or Joint Operation

Merchandise Revenue
Expenses Return or takeover of
mdse

Profit Table:
B O X
Bonus 8,250 8,250
Interest on investments
P100,000 x .06 x 3/12 1,500 1,500
P66,000 x 6% x 3/12 990 990
P90,000 x 6% x 3/12 1,350 1,350
Net profit after bonus &
interest
(P33,000 – P990 – P1,350) 9,720 ( 9,720) (9,720) 29,160
19,470 10,710 11,070 41,250

Equity:
Bert Oscar Xavier Total
Contributions 100,000 P 66,000 P90,000
Unsold merchandise (15,000) (11,400)
Profit share 19,470 10,710 11,070
Cash settlement 119,470 61,710 89,670 270,850

Prove cash settlement: 100,000 + 229,500- 58650= 270,850

Problem B. Joint Operation where all transactions are record in each participant’s book.
BOOKS OF Red BOOKS OF Bon

Joint Operation 1,000,000 Joint Operation 1,000,000

Cash 500,000 Cash 500,000

Bon 500,000 Red 500,000

Joint Operation 50,000 Joint Operation 50,000

Cash 50,000 Red 50,000

Cash 500,000 Cash 625,000

AR 500,000 AR 625,000

Bon 1 ,250,000 Red 1,000,000

Joint Operation 2,250,000 Joint Operation 2,250,000

Joint Operation 75,000 Joint Operation 75,000

Bon 75,000 Cash 75,000

Cash 500,000 Cash 625,000

AR 500,000 AR 625,000

Merchandise 20,000 Merchandise 13,000

Bon 13,000 Red 20,000

Joint Operation 33,000 Joint Operation 33,000

Joint operation 1,158,000 Joint operation 1,158,000

Income fr Joint Operation 571,500 Income fr Joint Operation 586,500

Bon 586,500 Red 571,500

 Cash 101,500 Red 101,500

Bon 101,500 Cash 101,500

Below, instead of entries, make postings but just one T account for joint operation anyway
postings for this will be the same whether you take it from the book of Red or Bon. Only after
entries 1,2,3,4,6 will you be able to get profit or loss depending on whether it’s a cr or dr
balance. It’s a credit balance or profit based on the T account below.

b) Joint Operation
1. 1,000,000 3. 2,250,000

2. 50,000 6. 33,000

4. 75,000

Balance 1,158,000

Profit Table
Profit of 1,158,000 Red Bon

6% commission (135,000) P 60,000 75,000

Remainder equally (1,023,000) 511,500 511,500

1,158,000 571,500 586,500

Red’s equity in the books of Bon Bon’s equity in the books of Red
Sales w/held 1,000,000 Contributions 500,000 Sales w/held 1,250,000 Contributions 500,000

Mdse w/held 20,000 50,000 Mdse w/held 13,000 75,000

share in profit 571,500 Profit share 586,500

Balance 101,500

Balance 101,500

Balance should be the same, one on the dr side means Bon will pay, cr side Red will receive. Look at last
journal entry on top. You can prepare a table instead. Logic will tell you if your contribution plus share in
profit (1,161,000) is lesser than what you recovered as your share in cash and mdse (1,263,000), you have
an accountability.
Problem C. Using Problem B Alternative method, practical than the second problem where all transactions
are recorded in both books (time consuming… communication and recording wise).

In this method, limit entries only on transactions affecting an operator then send a summary of
operation from time to time to inform co-operator. Wait to combine result of joint operation at the
point that the objective of the contractual agreement has been accomplished and you are ready to
close the agreement (mdse take over, profit share, cash settlement).
BOOKS OF Red BOOKS OF Bon
Joint Operation 500,000 Joint Operation 500,000
Cash 500,000 Cash 500,000

Joint Operation 50,000

Cash 50,000

Cash 500,000 Cash 625,000

AR 500,000 AR 625,000
Joint Operation 1,000,000 Joint Operation 1,250,000

Joint Operation 75,000

Cash 75,000

Cash 500,000 Cash 625,000

AR 500,000 AR 625,000

Merchandise 20,000 Merchandise 13,000

Joint Operation 20,000 Joint Operation 13,000

Joint operation 571,500 Joint operation 586,500

Income fr Joint Operation 571,500 Income fr Joint Operation 586,500

Cash 101,500 Joint Operation 101,500

Joint Operation Cash 101,500
101,500

Joint Operation- Book of Red Joint Operation- Book of Bon

500,000 1,000,000 500,000 1,250,000
50,000 20,000 75,000 13,000

Balance 470,000 Balance 688,000

The transactions recorded and posted above give you contributions and drawings only from which the
balances are extracted and added together to arrive at the result of operation (profit) 1,158,000
Profit Table

Profit of P1,158,000 Red Bon

6% commission (135,000) P 60,000 75,000
Remainder equally (1,023,000) 511,500 511,500
571,500 586,500
 After getting each share of the profit, back to each book, record profit. Then back to the T accounts post
profit share in each book.

Joint Operation- Red’s Book Joint Operation-Bon’s Book

500,000 1,000,000 500,000 1,250,000
50,000 20,000 75,000 13,000

Balance 470,000 Balance 688,000

571,500 586,500
Balance 101,500 Balance 101,500

Balances will change to 101,500 on the dr side in Red’s book and 101,500 cr side in Bon’s book.

Last entry will be to close the joint operation acct representing right to receive (Red) and obligation to pay (Bon).
Refer to last journal entry.

Ex. 6. Similar to problem 3 but instead of entries, 2 JO accounts with postings.

Determine the balances of the JO accounts, puro credit so add= profit of P11,000

Joint Operation- Book of Charlie Joint Operation- Book of Henry

19,000 16,000 3,000 12,000
5,000
Balance 9,000
Balance 2,000

Determine the profit share:

Profit Share: Charlie (.2 x 14,000) P 2,800 Henry (.25 x 12,000) P 3,000
(.25 x 16,000) 4,000 (.4 x 1,200) 480

(.6 x 1,200) 720 P3,480

P7,520

Record in each book the profit share: on the debit side of the JO account. The balances will change as
follows:
Joint Operation- Book of Charlie Joint Operation- Book of Henry
19,000 16,000 3,000 12,000
5,000

Balance 2,000 Balance 9,000

Profit share 7,520 Profit share 3,480

Balance 5,520 Balance 5,520

Who pays: Henry with a credit balance debits joint operation to close and credits cash.
Charllie with a debit balance closes this on the credit side and debits cash.

Again, the JO account is similar to an investment account,

Books of Charlie Books of Henry
Joint Venture 7,520 3,480
Income from JO 7,520 3,480

Cash 5,520 Joint Operation 5,520

Joint Operation 5,520 Cash 5,520

Ex. 7. Books of A Similar to problem 2 except that in T Accounts, postings have already been made up. So 3
entries na lang ang missing= mdse take over, profit and cash settlement.

Get the balance of Joint Operation= P40,850 + unsold goods 1,550= P11,600 credit balance representing profit.
Compute for profit share and prepare entries.
Books of A
N 1,550
Joint Operation 1,550 this entry records take over of mdse by N

Joint Operation 11,600

Income fr JO 4,570 (11,600/1.1= 1,055+3,515)
B 3,515
C 3,515

B 7,715
C 12,215
Cash 19,930

To Prove A’s Accountability: prepare a table for determination na lang of equity or accountability.

Cash sales withheld 30,500

Investment (6,000)
Share in income (4,570)
19,930

To Prove B’s equity:

Investment 10,500
Share in income 3,515
Withheld sales (6,300)
7,715

Prove also equity or accountability of C.

Books of B Books of C
Joint Operation 11,600 JO 11,600
A 4,570 A 4,570
Income from JO 3,515 Income 3,515
C 3,515 B 3,515

Cash 7,715 Cash 12,215

C 12,215 B 7,715
A 19,930 A 19,930
EXERCISE 4 is like no 2 except that Dan is entrusted over the assets of the Joint Operation, kaya may
bagong account titles siya: Joint Operation Cash or Joint Operation Receivable, or Joint Operation Payable
as the case may be. Compare the entries of Dan as against the other two participants and see the
differences in the recording. Ed and Fe cannot record the resources or obligations kasi di naman nila tangan
ang mga ito. Instead they will debit or credit the account of Dan.
Ex. 4 Books of Dan Books of Ed Books of Fe
1) JO Cash 900,000 Dan 900,000 900,000
Cash 300,000 Dan 300,000 300,000
Ed 300,000 Cash 300,000 300,000
Fe 300,000 Fe 300,000 300,000

2)Joint Operation 600,000 Joint operation 600,000 600,000

JO Cash 600,000 Dan 600,000 600,000
3)Joint Operation 125,000 Joint operation 125,000 125,000
JO Cash 125,000 Dan 125,000 125,000

4) JO Cash 700,000 Dan 700,000 700,000

Joint Operation 700,000 Joint Operation 700,000 700,000
6) Merchandise 120,000 Dan 120,000 120,000
Joint Operation 120,000 Joint Operation 120,000 120,000
After no 6 each book will carry the following balances:
Books of DAN Books of ED Books of FE
JO Cash 875,000 Dan 695,000 Dan 695,000
Joint Operation 95,000 Joint Operation 95,000 Joint Operation 95,000
Ed 300,000 Ed 300,000
FE 300,000 Fe 300,000
Balancing figures 180,000 300,000 300,000
The books of Dan shows his equity at 180,000 over JO but in the books of Ed and Fe net accountability ni Dan
695,000 because of the JO cash which is with him (875-180).
No 7 will be entry to close Joint Operation and record Income based on 4:3:3, respectively):
Joint Operation 95,000 Joint Operation 95,000 145,000
Income fr JO 38,000 Dan 38,000 Dan 38,000
Ed 28,500 Income fr JO 28,500 FE 28,500
Fe 28,500 Fe 28,500 Income 28,500
After no 7 each book will carry the following balances (wala na dapat yong joint Operation acct):
Books of DAN Books of ED Books of FE
JO Cash 875,000 Dan 657,000 Dan 657,000
Ed 328,500 Ed 328,500
FE 328,500 Fe 328,500
Balances 218,000 328,500 328,500
The balance represent parang equity Acct (dr balance should pay). Lahat credit balance so right to recover:
Last entry for cash settlement (remember nasa kamay ni Dan Company ang Joint Operation Cash) closes all
accounts.
8) Cash 218,000 Cash 328,500 Cash 328,500
Ed 328,500 Fe 328,500 Ed 283,500
Fe 328,500 Dan 657,000 Dan 657,000
 JO Cash 875,000

Exercise 5 page 132.

SOLUTION: Similar to no 4 except that only the balances are shown before the takeover of unsold merchandise.

In the books of N and O, why is P’s equity P10,000 only? In the books of P, the balancing figure is on the credit side
representing P’s equity of P25,000 but it should be decreased by his accountability which is P15,000 in the form of Joint
Operation AR and Cash.

Additional entries in each book for the unsold goods taken over by N:

Books of P Books of N Books of O

N 5,000 Merchandise 5,000 N 5,000
Joint Operation 5,000 Joint Operation 5,000 Joint Operation 5,000

Balances will change again as follows:

N O P
Debit Credit Debit Credit Debit Credit
Joint Operation Cash 10,000
JO Accts Recble 5,000
N 7,000 7,000
O 13,000 13,000
P 10,000 10,000
Joint Operation 30,000 30,000 30,000
Balancing figure represents
equity of each operator 7,000 13,000 25,000
In red are the changes because of the withdrawal of merchandise by N.

Joint Operation will have a debit balance representing loss. Additional entries to record loss and close joint operation
account:
Books of P Books of N Books of O
Loss from JV 10,000 Loss 10,000 Loss 10,000
N 10,000 O 10,000 N 10,000
O 10,000 P 10,000 P 10,000
Joint Operation 30,000 Joint Operation 30,000 Joint Operation 30,000

Balances will change as follows (Note that P’s account will be closed in the books of N and O:
N O P
Debit Credit Debit Credit Debit Credit
Joint Operation Cash 10,000
JO Accts Recble 5,000
N 3,000 3,000
O 3,000 3,000
Balancing figures 3,000 3,000 15,000
In red are the changes because of the entry for the loss distribution.
Last entry will show recovery as follows:
Books of P Books of N Books of O
Accounts Recble 5,000
Cash 10.000 O 3,000 Cash 3,000
O 3,000 Cash 3,000 N 3,000
N 3,000
JO Cash 10,000
JO Accts Recble 5,000

THAT IN ALL THINGS GOD MAY BE GLORIFIED