Chapter 18 (ANSWERKEY) Joint Arrangement PDF

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Joint Arrangement 116CHAPTER 6SOLUTIONS TO MULTIPLE CHOICES6-1: aRental Income P5 millionExpenses (P200,000 + P P1,000,000) 1.Net income, 2013 P3 million6-2: aRental income P8 millionExpenses.Net income, 2014 P7 million6-3: aInvestment P10 millionProfit share (P3 million x 40%) 1.Interest entity A, ...

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Joint Arrangement

116

CHAPTER 6 SOLUTIONS TO MULTIPLE CHOICES

6-1:

6-2:

6-3:

6-4:

6-5:

6-6:

6-7:

6-8:

a Rental Income Expenses (P200,000 + P P1,000,000) Net income, 2013

P5 million 1.2 P3.8 million

a Rental income Expenses Net income, 2014

P8.0 million .5 P7.5 million

a Investment Profit share (P3.8 million x 40%) Interest entity A, Dec. 31, 2013

P10.00 million 1.52 P11.52 million

d Investment 2013: Profit share (P3.8 M x 40%) in entity A 2014: Profit share (P7.5 M x 40%) in entity A Dividends received (P3 M x 40%) Interest in entity A, Dec. 31, 2014

P10.00 million 1.52 3.00 (1.20) P13.32 million

b Cash Transportation equipment Furniture and fixtures Total assets c Cash Furniture and fixtures Total assets

P 50,000 250,000 P300,000

d Accounts payable Other liabilities Total liabilities

P600,000 100,000 P700,000

a Other liabilities

P100,000

P 50,000 600,000 250,000 P900,000

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6-9:

6-10:

6-11:

6-12:

Chapter 6

a Investment in Bank XY Profit share in Bank XY – 2013 (P4 M x 40%) Interest of Bank X, December 31, 2013

P50.0 M 1.6 M P48.4 M

a Investment in Bank XY Profit share in Bank XY – 2013 (P4 M x 40%) Profit share in Bank XY – 2013 (P5 M x 40%) Dividends received (4 M x P40%) Interest of Bank Y, December 31, 2014

P50.0 M 1.6 M 2.0 M (1.6) M P52.0 M

a Cash (P3,000,000 less P700,000) Property, plant and equipment P30,000,000 less P1,400,000) Total assets

P2,300,000 28,600,000 P30,900,000

b Total equity Divided by Interest of each party

P30,900,000 3 P10,300,000

6-13:

a At cost of P300,000.

6-14:

c Dividends declared, 1/2/2013 (P100,000 x 30%) Dividends declared, 12/31/2013 (P150,000 x 30%) Total dividend income

P30,000 45,000 P75,000

6-15:

a At fair value of P425,000.

6-16:

a Fair value of investment Cost to sell Investment in entity AB, 12/31/2013

P293,000 (3,000) P290,000

a Cost Recoverable amount Impairment loss

P300,000 290,000 P 10,000

a Dividend income (P300,000 x 30%) Increase in fair value (P850,000 – P600,000) Increased in profit and loss

P90,000 250,000 P340,000

6-17:

6-18:

Joint Arrangements

6-19:

b At fair value P850,000.

6-20:

c Cost Share in earnings of Entity Z (P400,000 x 30%) Dividends received, 1/20/2013 (P100,000 x 30%) Dividends received, 12/31/2013) (P150,000 x 30%) Investment in Entity Z, 12/31/2013

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P300,000 120,000 (30,000) (45,000) P345,000

No impairment in 2013, fair value exceeds the carrying amount.

6-21:

a Cost Share in Entity Z’s loss (P100,000 x 30%) Carrying amount of venturer’s investment in entity Z, 12/31/2013

P300,000 (30,000) P270,000

No impairment loss in 2013, carrying amount of P270,000 is lower that its recoverable amount 0f P310,000. 6-22:

6-23:

6-24:

d Cost of investment in Entity Z Share in Entity Z’s loss, 2013 (P100,000 x 30%) Carrying amount before impairment Impairment loss: Recoverable amount P265,000 Carrying amount before impairment 270,000 Investment in Entity Z, 12/31/2013 a Cost of investment in Entity RS, 1/1/2013: Carrying amount of machine Realized gain (200,000 – 160,000) x 50% Share in entity RS profit (P60,000 x 50%) Realized gain (P20,000 ÷ 10 yrs.) Investment in entity RS, 12/31/2013

P160,000 20,000

c Cost of investment in entity O Share in entity O’s profit, 12/31/2013 (P600,000 x 30%) Unrealized profit (P90,000 x 50/150) x 30% Dividends received (P225,000 x 30%) Investment in entity O, 12/31/2013

P300,000 (30,000) 270,000

(5,000) P265,000

P180,000 30,000 2,000 P212,000

P450,000 180,000 9,000 (67,500) P553.500

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6-25:

Chapter 6

b, should be P786,286 Cost of investment Share in entity Z realized profit: Profit, 12/31/2013 Unrealized profit in inventories (120,000 x 40%/140%) Realized profit, 12/31/2013 Multiply by Dividends received (300,000 x 40%) Investment in entity Z, 12/31/2013

P600,000 P800,000 (34,285) P765,715 40% 306,286 (120,000) P786,286

Joint Arrangements

120

SOLUTIONS TO PROBLEMS

Problem 6 – 1 Books of Lebron Construction costs Cash / Accounts payable To record the construction costs incurred in 2013.

12 M

Cash

15 M

12 M

Construction revenue To record one-half of the construction revenue earned in 2013 Construction revenue Construction costs Income summary To close construction revenue and costs of construction

15 M

15 M 12 M 3M

Books of Durant Construction costs Cash/ Accounts payable

10 M 10 M

To record the construction costs incurred in 2013 Cash

15 M

Construction revenue To recognize one half of the construction revenue. Construction revenue Construction costs Income summary To close construction revenue and costs of construction.

15 M

15 M 10 M 5M

Problem 6 – 2 Books of Bryant Cash (50%) Property, plant and equipment (100%) Other assets (50%) Current liabilities(100%) Long-term debt (50%) Equity To record interest in joint arrangements BW

20,000 240,000 100,000 240,000 50,000 70,000

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Chapter 6

Problem 6-2, continued: Books of Wade: Cash (50%) Other assets (50%) Long-term debt(50%) Equity To record interest in the joint arrangements BW

20,000 100,000 50,000 79,000

Problem 6 – 3 Books of Lin: 2013: Investment in joint venture Cash To record investment in the joint venture Investment in joint venture Income from joint venture To record share in the net income of LK (2 M x ½). 2014: Investment in joint venture Income from Joint Venture To record share in the net income of LK (3 M x ½). Cash

10 M 10 M

1 M 1 M

1.5 M 1.5 M

.5 M

Investment in joint venture To record dividends received from LK.

.5 M

Books of Kid: 2013: Investment in joint venture Cash To record investment in the joint venturet Investment in joint venture Income from joint venture To record share in the net income of the joint venture

10 M 10 M

1M 1 M

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Chapter 6

Problem 6-3, continued:

2014: Investment in joint venture Income from joint venture To record share in the net income of the joint venture.

1.5 M

Cash

.5 M

1.5 M

Investment in joint venture To record dividends received for the year.

.5 M

Problem 6 – 4 Requirement (1) Books of SME X (Cost Model): 2013: January 1: Investment in jointly controlled entity (entity A) Investment in jointly controlled entity (entity B) Investment in jointly controlled entity (entity C) Cash To record acquisition of investments in jointly controlled entities. Investment in jointly controlled entity (entity A) Investment in jointly controlled entity (entity B) Investment in jointly controlled entity (entity C) Cash To record transaction costs incurred .

100,000 150,000 280,000 530,000

1,000 1,500 2,800 5,300

January 2: Cash

2,500

Dividend income (profit or loss) To record dividends received from entity A (P10,000 x 25%)

2,500

January 31: Dividend receivable (entity B) Dividend income To record dividend receivable from entity B (P80,000 x 25%). Impairment loss Investment in jointly controlled entity (entity C) To record impairment of the investment in entity C.

20,000 20,000

140,300 140,300

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123

Problem 6-4, continued: Computations of the impairment loss: Cost of investment in entity C (P280,000 + P2,800) Fair value Less estimated cost to sell (P150,000 x 5%) Impairment loss

P282,800 P150,000 7,500

142.500 P140,300

Books of SME Y (Fair Value Model): 2013: January 1: Investment in jointly controlled entity (entity A) Investment in jointly controlled entity (entity B) Investment in jointly controlled entity (entity C) Cash To record acquisition of investments in jointly controlled entities.

100,000 150,000 280,000 530,000

Transaction costs (profit or loss) Cash To record transaction costs incurred (P530,000 x 1%)

5,300

Cash

2,500 1,500

5,300

Dividend income (profit or loss) To record dividends received from entity A (P10,000 x 25%) December 31: Dividend receivable Dividend income To record dividend receivable from entity B (P80,000 x 25%).

20,000 20,000

Profit or loss (change in fair value) 130,000 Investment in jointly controlled entity (entity C) 130,000 To record the decrease in fair value of investment in entity C (P280,000 cost less P150,000 fair value. Investment in jointly controlled entity (entity A) 30,000 Investment in jointly controlled entity (entity B) 140,000 Profit or loss (change in fair value) To record increase in fair value of investments in jointly controlled entities A and B.

Fair value Cost Increase

Entity A P130,000 100,000 P 30,000

Entity B P290,000 150,000 P140,000

170,000

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Chapter 6

Requirement (2) Books of SME X (equity method): 2013 January 1: Investment in jointly controlled entity (entity A) Investment in jointly controlled entity (entity B) Investment in jointly controlled entity (entity C) Cash To record acquisition of investments in jointly controlled entities.

Investment in jointly controlled entity (entity A) Investment in jointly controlled entity (entity B) Investment in jointly controlled entity (entity C) Cash To record transaction costs incurred.

100,000 150,000 280,000 530,000

1,000 1,500 2,800 5,300

January 2: Cash

2,500

Investment in jointly controlled entity (entity A) To record dividends received from entity A (P10,000 x 25%)

2,500

December 31: Dividends receivable (entity B) Investment in jointly controlled entity (entity B) To record dividend receivable from entity B (P80,000 x 25%)

20,000

Investment in jointly controlled entity (entity A) Income from jointly controlled entity (Profit or loss) To record share of entity A’s profit for the year (P50,000 x 25%).

12,500

Investment in jointly controlled entity (entity B) Income from jointly controlled entity (Profit or loss) To record the share of entity B’s profit for the year (P180,000 x 25%)

45,000

Loss from jointly controlled entity (Profit or loss) Investment in jointly controlled entity (entity C) To record share of entity C’s loss for the year (P200,000 x 25%).

50,000

Impairment loss (profit or loss) Investment in jointly controlled entity (entity C) To record impairment of the investment in entity C: Cost (P282,800 – P50,000) Less fair value P150,000 Cost to sell (P150,000 x 5%) (7,500) Impairment loss

90,300

20,000

12,500

45,000

50,000

90,300 P232,800 142,500 P 90,300...