Holooly Plus Logo

Question 15.7: Joint Venture Assume that hypothetical Companies A and B ent...

Joint Venture

Assume that hypothetical Companies A and B enter into a joint venture, each with a 50 percent interest. The first column presents the assumed financial statement for the joint venture in its first year. Columns 2 and 3 reflect the financial result for Company A under the two methods of accounting for its interest in the joint venture.

^aThe data (other than the subtotals) shown under the equity method are the same as if there had been no joint venture except for “Equity in joint venture income,” “Investment in joint venture,” and “Retained earnings.”

Company A Venturer
Joint Venture Equity Method^a Proportionate Consolidation
Income Statement
Sales $400,000 $1,000,000 $1,200,000
Equity in joint venture income 60,000
Cost of sales 200,000 500,000 600,000
Other expenses \underline{80,000} \underline{240,000} \underline{280,000}
Net income $120,000 $320,000 $320,000
Balance Sheet
Cash $40,000 $400,000 $420,000
Inventory $500,000 $500,000
Investment in joint venture $450,000
Other assets \underline{1,160,000} \underline{1,500,000} \underline{2,080,000}
$1,200,000 $2,850,000 $3,000,000
Accounts payable $200,000 $200,000
Long-term debt 300,000 1,650,000 1,800,000
Capital stock 600,000 600,000
Retained earnings \underline{400,000} \underline{400,000}
Venturers’ (Companies A and B) equity \underline{900,000}
$1,200,000 $2,850,000 $3,000,000
The "Step-by-Step Explanation" refers to a detailed and sequential breakdown of the solution or reasoning behind the answer. This comprehensive explanation walks through each step of the answer, offering you clarity and understanding.
Our explanations are based on the best information we have, but they may not always be right or fit every situation.
The blue check mark means that this solution has been answered and checked by an expert. This guarantees that the final answer is accurate.
Learn more on how we answer questions.
Already have an account?

Related Answered Questions