A 60:40 joint operation was commenced between two participants. Participant One contributed cash of $60 000, and Participant Two agreed to provide technical services to the joint operation over a period of two years. The fair value of the services was determined to be $40 000 and the cost to provide the services was estimated to be $35 000 Using the line-by-line method of accounting, participant Two would record:

Question

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Participant Two would record the fair value of their services as revenue, which is $40 000. Then, they would record the cost of providing the services as an expense, which is $35 000. This leaves a profit of $5 000, which they would record as their share of the joint operation's income. Therefore, the entry would be a debit of $35 000 to the joint operation expense account, a credit of $40 000 to the joint operation revenue account, and a credit of $5 000 to Participant Two's share of income account. Choice B accurately reflects this entry.

A 60:40 Joint Operation Was Commenced Between Two Participants