A 70:30 joint operation was commenced between two participants. Marian Limited contributed cash of $210 000, and Keyes Limited agreed to provide technical services to the joint operation over a period of three years. The fair value of the services was determined to be $90 000 and the cost to provide the services was estimated to be $81 000. Using the line-by-line method of accounting, Keyes Limited would record which of the following entries?
A) DR Cash in JO $90 000 CR Obligation to JO $90 000
B) DR Cash in JO $63 000 CR Obligation to JO $56 700
CR Profit on provisions of services $ 6 300
C) DR Cash in JO $81 000 CR Obligation to JO $81 000
D) DR Cash in JO $81 000 DR Receivable in JO $ 9 000
CR Obligation to JO $90 000

Question

Quizplus · Accepted Answer

The line-by-line method requires each joint venture participant to record their contributions and obligations separately.

Marian Limited contributed cash of $210 000, so they would record:

DR Cash in JO $147 000 (70% of $210 000)
CR Obligation to JO $147 000

Keyes Limited agreed to provide technical services with a fair value of $90 000, but the cost to provide the services was estimated to be $81 000. Therefore, the net contribution of Keyes Limited is $9 000 ($90 000 - $81 000).

Keyes Limited would record:

DR Obligation to JO $56 700 (70% of $81 000)
DR Profit on provisions of services $6 300 (70% of $9 000)
CR Cash in JO $63 000 (70% of $90 000)

Therefore, the correct answer is B.

A 70:30 Joint Operation Was Commenced Between Two Participants