Ally Ltd and Cat Ltd Have Established the Ally Cat

question 22

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 Ally 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 $108 000.
• C) credit against the plant of $240 000.
• D) credit against the gain on sale of plant of $36 000.

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Definitions:

Net Income

Net income is the total earnings of a company after deducting all expenses, taxes, and losses, indicating the company's profitability over a specific period.

Ending Inventory

The value of the goods available for sale at the end of an accounting period.

FOB Destination

Freight terms in which the seller pays the transportation costs from the shipping point to the final destination.

Net Income

The total earnings of a company after deducting all expenses and taxes from total revenue.