Solution Manual and Test Bank Advanced Accounting by Guerrero & Peralta 2 CHAPTER 06

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(1)Joint Venture 103 CHAPTER 6 SOLUTIONS TO MULTIPLE CHOICES 6-1: a Assets per Jessica Company- balance sheet Jessica’s proportionate interest in assets of JV (50%) Total assets of Jessica 6-2: a P3,550,000 1,000,000 P4550,000 Total liabilities only of Jenny Co. 6-3: b 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 P80,000 150,800 120,640 30,160 10,000 20,160 x 40% 8,064 P88,064 6-5: a Cash Merchandise inventory Accounts receivable Total assets Sweet Co’s, proportionate interest Sweet Company’s share in total asset P190,000 29,360 150,800 370,160 x 60% P222,096 6-6: a Sales Cost of sales Purchases Merchandise inventory, end (50% of P10,000) 7,200 P10,000 __5,000 _5,000 Gross profit Expenses 2,200 ___500 Net profit P 1,700

(2) 104 Chapter 6 6-7: b Original investment (cash) Profit share (P1,700 / 2) P10,000 ___850 Balance of Investment account P10,850 Joint venture account before profit distribution (credit balance) Unsold merchandise P 9,000 __2,500 Joint venture profit before fee to Salas P11,500 Joint venture profit after fee to Salas (P11,500 / 115%) P10,000 6-8: a 6-9: 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 6-10: b Salas Salve Balance before profit distribution Profit share:Sabas (P10,000 x 40%) Salve (P10,000 x 35%) P 500 (dr) P 2,000 (cr) 4,000 ______ _3,500 Balance P 3,500 (cr) P 5,500 (cr) 6-11: d Joint venture account balance before profit distribution (debit) Joint venture profit (P4,500 x 3) P 6,000 _13,500 Cost of unsold merchandise (inventory) taken by Dante P19,500 Edwin Capital: Debits: Balance before profit distribution Credits: Profit share P14,000 __4,500 6-12: b Due from Edwin (debit balance) P 9,500

(3) Joint Venture 105 Settlement to Ferdie (Balance of capital account) Debits: Credits: Balance before profit distribution Profit share P –0– P16,000 __4,500 Due to Ferdie (credit balance) _20,500 P20,500 Settlement to Dante (balance of JV Cash account) Debits: Balance before cash settlement Due from Edwin Credits: Due to Ferdie P30,000 __9,500 Balance P39,500 _20,500 P19,000 6-13: a JV account balance before profit distribution (cr) Unsold merchandise (required dr balance after profit distribution) P 4,600 __2,000 Joint venture profit before fee to Jerry Joint venture profit after fee (P6,600 / 110%) Fee to Jerry P 6,600 __6,000 P 600 6-14: d Harry Capital 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 6-15: b Sales Cost of sales: Merchandise inventory, beg (contributions) Freight Purchases P14,000 300 __4,000 Goods available for sale Merchandise inventory, end (P8,300/2) P18,300 __4,150 Gross profit (loss) Expenses (P400 + P200) Net profit (loss) P14,000 14,150 (150) __600 P( 750) 6-16: c Contributions to the Joint Venture (P5,000 + P8,000) Loss share (P750 x 50%) Unsold merchandise taken (withdrawal) P13,000 ( 375) ( 4,150) Final settlement to jack P 8,475

(4) 106 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 Credit balance (Profit) P 30,000 Distribution 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

(5) Joint Venture 107 Problem 6 – 2 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 Adjusting and closing entries: (a) (b) Expenses Supplies Sales 500 500 150,000 Income summary 150,000 Income summary Merchandise inventory Purchases 77,500 2,500 Income summary Expenses 39,500 Distribution of profit: Income summary Diaz capital Ella capital Fabia capital 80,000 39,500 33,000 11,000 11,000 11,000

(6) 108 Chapter 6 Books of Diaz (1) (2) (3) Investment in Joint Venture Cash 82,000 Investment in Joint Venture Cash 9,000 82,000 9,000 To record profit share: Investment in Joint Venture Profit from Joint Venture 11,000 11,000 Books of Ella: (1) (2) (3) Investment in Joint Venture Computer equipment 60,000 Investment in Joint Venture Merchandise inventory 20,000 60,000 20,000 To record profit share: Investment in Joint Venture Profit from Joint Venture 11,000 11,000 Books of Fabia: (1) (2) Investment in Joint Venture Computer equipment 45,000 Cash 10,000 45,000 Investment in Joint Venture (3) 10,000 To record profit share: Investment in Joint Venture Profit from Joint Venture 11,000 11,000

(7) Joint Venture 109 Problem 6 – 3 (1) No Separate Set of Joint Venture Books is Used Books of Duran (Manager) May 1: 7: Joint Venture Castro capital Cash 12,500 JV cash Bueno capital 10,000 26: Joint Venture JV cash 12,000 500 10,000 9,500 9,500 30: JV accounts receivable Joint Venture 16,000 June 30: JV cash JV accounts receivable 15,000 27: JV cash Joint Venture 16,000 15,000 9,000 9,000 30: To record unsold merchandise taken by Duran: Merchandise inventory Joint Venture 3,000 3,000 To record profit distribution: Joint Venture Profit from JV Bueno capital Castro capital 6,000 2,000 2,000 2,000 To record settlements: Bueno capital Castro capital JV cash Cash Accounts receivable JV accounts receivable 12,000 14,000 24,500 1,500 1,000 1,000

(8) 110 Chapter 6 Books of Bueno May 7: Investment in Joint Venture Cash June 30: Investment in Joint Venture Profit from Joint Venture Cash 10,000 10,000 2,000 2,000 12,000 Investment in Joint Venture 12,000 Books of Castro May 1: Investment in Joint Venture Merchandise inventory June 30: Investment in Joint Venture Profit from Joint Venture Cash 12,000 12,000 2,000 2,000 14,000 Investment in Joint Venture (2) 14,000 A Separate Set of Books is used: Books of the Joint Venture May 1: 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

(9) Joint Venture 111 June 30: Closing entries: Sales 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 Books of Duran (Manager/Operator) May 1: Investment in Joint Venture Cash June 30: Investment in Joint Venture Profit from Joint Venture Cash 500 500 2,000 2,000 2,500 Investment in Joint Venture Books of Bueno and Castro (Same as in No. 1 requirement) 2,500

(10) 112 Chapter 6 Problem 6 – 4 (1) Books of Seiko (Manager/Operator) April 1: 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

(11) Joint Venture 113 To record payment of loan to PNB: Notes payable – PNB Rolex capital Timex capital Joint venture (Interest expense) JV cash 34,000 34,000 34,000 8,000 110,000 To record distribution of profit: Joint venture Gain from JV (30%) Rolex capital (60%) Timex capital (10%) 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 Gain (credit balance) 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 P146,000 Credits: April 1 May June July August Profit share P34,000 47,800 64,700 31,240 16,560 _80,574 __274,874 Credit balance P 128,874

(12) 114 Chapter 6 Settlement to timex – Balance of capital account Debits: July August Payment of loan 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 Settlement to Seiko – Balance of JV cash account Debits: April 1 Loan proceeds 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 Partial Balance Sheet June 30, 2008 Books of Seiko (Manager/operator) Current assets: Investment in joint Venture: Joint Venture assets: Cash Joint Venture Less: Equity of other venturers (P116,500 + P43,300) Current liabilities: Notes payable – PNB P 72,000 _175,500 P247,500 _159,800 87,700 34,000

(13) Joint Venture 115 Computation of balances as of June 30, 2008: JV Cash April 1 P102,000 Balance P 72,000 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 April 1 May June P116,500 Timex capital P34,000 __9,000 April June P43,300 Problem 6 – 5 Consolidated Balance Sheet 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 Total liabilities and stockholders' equity P326,000 Consolidated Income Statement Sales Cost of sales P246,750 _124,750 Gross profit Operating expenses 122,000 __58,250 Consolidated net income P 63,750

(14) 116 Chapter 6 Problem 6 –6 (a) Journal entries on venture books June 15: Cash 1,000,000 MacDo Initial contribution at 6% July 1: Aug 1: 1,000,000 Land 2,400,000 Mortgage payable Cash Purchased land for cash and 6% mortgage. 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

(15) Joint Venture 31: 117 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 Interest expense- Venturer MacDo 6% on P1,000,000 from June 15 to December 31, and on P1,100,000 from August 1 to December 31. Sales 130,000 628,100 60,000 60,000 2,600,000 Land (cost of land sold) Expenses Commissions Interest expense- mortgage Interest- venturer Income summary To close income and expense accounts. 31: 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 Journal entries on MacDo’s books: June 15: Aug 1: Investment in Joint Venture Cash Initial contribution. 1,000,000 Investment in Joint Venture Cash Additional contribution. 1,100,000 1,000,000 1,100,000

(16) 118 Chapter 6 Dec 31: 31: 31: Investment in Joint Venture Interest income Interest earned on cash advanced. 60,000 60,000 Investment in Joint Venture Gain on Joint Venture 60% of gain on venture. 357,990 Cash 801,650 357,990 Investment in Joint Venture Repayment in part of advances. (c) 801,650 MacDo and MacEn Joint Venture Income Statement For the period from June 15 to December 31, 2008 Sales Cost of land sold: Land Improvements Total Unsold land Gross profit Expenses: Advertising and office expenses Interest on mortgage Interest on advances Commissions Net gain Distributions: MacDo (P596,650 x 60%) MacEn (P596,650 x 40%) 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 Mac Do and MacEn Joint Venture Balance Sheet December 31, 2008 Assets Cash Land Total Assets P 250,000 2,205,000 P2,455,000 Liabilities and equity: Mortgage payable MacDo MacEn Total liabilities and equity P 500,000 1,716,340 238,660 P2,455,000

(17) Joint Venture 119 Venturers equity (interest) Invested Shares: Gain Interest on advances Commissions Total Balances Withdrawn Equity (interests) 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

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