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113
CHAPTER 6
SOLUTIONS TO MULTIPLE CHOICES
6-1:
a
Assets per Jessica Company- balance sheet
Jessicas proportionate interest in assets of JV (50%)
Total assets of Jessica
6-2:
6-3:
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
6-5:
6-6:
P3,550,000
1,000,000
P4550,000
P80,000
150,800
120,640
30,160
10,000
20,160
x 40%
8,064
P88,064
a
Cash
Merchandise inventory
Accounts receivable
Total assets
Sweet Cos, proportionate interest
Sweet Companys share in total asset
a
Sales
Cost of sales
Purchases
Merchandise inventory, end (50% of P10,000)
P190,000
29,360
150,800
370,160
x 60%
P222,096
7,200
P10,000
__5,000
_5,000
Gross profit
Expenses
2,200
___500
Net profit
P 1,700
114
Chapter 6
6-7:
6-8:
6-9:
6-10:
b
Original investment (cash)
Profit share (P1,700 / 2)
P10,000
___850
P10,850
a
Joint venture account before profit distribution (credit balance)
Unsold merchandise
P 9,000
__2,500
P11,500
P10,000
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
b
Salas
6-11:
6-12:
Salve
Balance
d
Joint venture account balance before profit distribution (debit)
Joint venture profit (P4,500 x 3)
P 6,000
_13,500
P19,500
b
Edwin Capital:
Debits: Balance before profit distribution
Credits: Profit share
P14,000
__4,500
P 9,500
Joint Venture
6-12, continued
115
P 0
P16,000
__4,500
P20,500
P30,000
__9,500
Balance
6-13:
6-14:
a
JV account balance before profit distribution (cr)
Unsold merchandise (required dr balance after profit distribution)
P 4,600
__2,000
P 6,600
__6,000
P 600
d
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
b
Sales
Cost of sales:
Merchandise inventory, beg (contributions)
Freight
Purchases
P14,000
300
__4,000
P18,300
__4,150
P39,500
_20,500
P19,000
Harry Capital
6-15:
_20,500
P14,000
14,150
(150)
__600
P( 750)
P13,000
( 375)
( 4,150)
P 8,475
116
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
P 30,000
Distribution of Profit:
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
117
Problem 6 2
Requirement (1) - 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
Expense
Supplies
Sales
1,500
1,500
150,000
Income summary
150,000
Income summary
Merchandise inventory
Merchandise inventory, beg (Investment of Ella)
Purchases
97,500
2,500
Income summary
Expenses
40,500
Distribution of profit:
Income summary
Diaz capital
Ella capital
Fabia capital
20,000
80,000
40,500
12,000
4,000
4,000
4,000
118
Chapter 6
Problem 6-2, continued:
Requirement #2
Books of Diaz
Investment in JV
91,000
Cash
91,000
Books of Ella
Investment in JV
80,000
Comp. Equip.
60,000
MI
20,000
Books of Fabia
Investment in JV
45,000
Comp. Equip.
45,000
Cash
Investment in JV
Investment in JV
Inv. Income
4,000
4,000
Investment in JV
Inv. Income
4,000
4,000
Investment in JV
Inv. Income
10,000
10,000
4,000
4,000
*rounded to balance
*rounded to balance
Note. Under the proportionate consolidation method, difference will exist in the journal entry
(see above) because the profit and loss ratio (equally) is not equal to the venturers capital
interest as computed below:
Computation of capital interest:
Investments
Withdrawal
Profit share
Venturers capital
Interest in the Joint Venture
Diaz (P95,000/P218,000)
Ella (P84,000/P218,000)
Favia (P39,000/P218,000)
Diaz
P91,000
Ella
P80,000
4,000
P95,000
4,000
P84,000
Favia
P45,000
(10,000)
4,000
P39,000
Total
P196,000
(10,000)
12,000
P218,000
44%
38.5%
17.5%
It may be concluded that the proportionate consolidation method can be properly applied only if
the profit and loss ratio and the venturers capital interest are equal.
In US GAAP there is an exposure draft to eliminate the proportionate consolidation method. US
GAAP favor the use of the equity method contrary to IFRS No. 31 which favors the use of the
proportionate consolidation method
Joint Venture
119
Problem 6 3
(1)
7:
Joint Venture
Castro capital
Cash
12,500
JV cash
Bueno capital
10,000
12,000
500
10,000
9,500
9,500
16,000
15,000
27: JV cash
Joint Venture
16,000
15,000
9,000
9,000
3,000
3,000
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
120
Chapter 6
Problem 6-3, continued:
Books of Bueno
May 7:
10,000
10,000
2,000
2,000
12,000
12,000
Books of Castro
May 1:
12,000
12,000
2,000
2,000
14,000
14,000
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
121
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
500
500
2,000
2,000
2,500
2,500
122
Chapter 6
Problem 6 4
(1)
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%)
Joint venture
404,160
404,160
Joint Venture
Problem 6-4, continued:
123
34,000
34,000
34,000
8,000
110,000
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
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
Credits: April 1
May
June
P34,000
47,800
64,700
P146,000
July
August
Profit share
31,240
16,560
_80,574
Credit balance
__274,874
P 128,874
124
Chapter 6
Problem 6-4, continued:
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
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
P 72,000
_175,500
P247,500
(P116,500 + P43,300)
_159,800
87,700
Current liabilities:
Notes payable PNB
34,000
Joint Venture
Problem 6-4, continued:
125
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 Statement of Financial Position
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
P326,000
P246,750
April 1
May
June
Cost of sales
_124,750
Gross profit
Operating expenses
122,000
__58,250
P 63,750
126
Chapter 6
Problem 6 6
(a)
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
1,100,000
MacDo
Additional contribution at 6%.
Land
1,100,000
950,000
Cash
Paid for improvements.
Sept 30:
Oct 31:
Nov 30:
Dec 31:
1,650,000
750,000
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
Problem 6-6, continued:
31:
127
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
130,000
628,100
60,000
60,000
2,600,000
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
1,000,000
1,000,000
Aug 1:
1,100,000
1,100,000
128
Chapter 6
Problem 6-6, continued:
Dec 31:
31:
31:
60,000
60,000
357,990
Cash
801,650
357,990
801,650
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
P 250,000
Land
Total Assets
2,205,000
P2,455,000
P 500,000
1,716,340
238,660
P2,455,000
Joint Venture
129
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