A 50:50 Joint Operation Was Commenced Between Two Participants

question 20

Multiple Choice

A 50:50 joint operation was commenced between two participants. Mary Company contributed cash of $90 000, and Strickland Company contributed a Building with a fair value of $90 000 and a carrying amount of $75 000. Using the line-by-line method of accounting, Strickland Company would record:

• A) DR Building in JO $75 000 CR Building $75 000
• B) DR Building in JO $945000 CR Building $37 500
• CR Gain on sale of building $7 500
• C) DR Investment in joint operation $45 000 CR Building $37 500
• CR Gain on sale of building $7 500
• D) DR Cash in JO $45 000 DR Building in JO $45 000
• CR Building $75 000
• CR Gain on sale of building $15 000

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Definitions:

Net Present Value

A valuation method that reflects the present value of an investment's future net cash flows minus the initial investment cost.

Default Rate

The frequency at which borrowers fail to make scheduled payments on loans or securities.

Credit Policy

A set of guidelines that a company uses to determine the credit terms and conditions for its customers.