# 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.

$^a$The 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
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