Ally Ltd and Cat Ltd Have Established the Ally Cat

question 8

Multiple Choice

Ally Ltd and Cat Ltd have established the Ally Cat Joint Operation. Ally Ltd has a 60% interest in the joint operation and Cat Ltd has a 40% interest. Ally Ltd contributed an asset with a carrying amount of $180 000 and a fair value of $240 000 and Cat Ltd agreed to provide technical services to the joint operation over the first two years of operations. The fair value of the technical services was agreed to be $160 000 and the cost to provide the services was estimated at $130 000 at the inception of the joint operation.
As part of its initial contribution entry Cat Ltd will record a:

• A) debit against the services receivable in JO account of $64 000.
• B) debit against the plant in JO account of $72 000.
• C) credit against the obligation to JO of $78 000.
• D) credit against the gain on provision of services of $12 000.

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Definitions:

Purchase Discounts

Discounts a buyer receives for paying suppliers early, which are used to reduce the cost of purchased goods.

Net Purchases

Net purchases are the total amount of purchases minus returns, allowances, and discounts over a specified period, often used in analyzing inventory costs.

Sales Discounts

Reductions in the price of goods or services offered as an incentive to customers to encourage prompt payment.

Net Sales

The amount of sales revenue remaining after deducting sales returns, allowances, and discounts.