1. On January 1, 20X1, Entity A and Entity B, both public entities, incorporated Entity C by investing P3,000,000 and P2,000,000 for a capital interest ratio of 60:40. The contractual agreement of the incorporating entities provided that the decisions on relevant activities of Entity C will require unanimous consent of both entities. Moreover, Entity A and Entity B will have rights to the net assets of Entity C. The financial statements of Entity C provided the following data for 20X1: Entity C reported a net income of P1,000,000 for 20X1 and paid cash dividends of P400,000 on December 31, 20X1. During 20X1, Entity C sold inventory to Entity A with a gross profit of P50,000. 80% of those inventories were resold by Entity A to third persons during 20X1. The remainder was resold to third persons during 20X1. On July 1, 20X1, Entity C sold a piece of machinery to Entity B at a loss of P20,000. At the time of sale, the machinery has remaining useful life of two (2) years. Required: Determine the following: The investment income to be reported by Entity A for the year ended December 31, 20X1. b. The balance of Investment in Entity C to be reported by Entity B on December 31, 20X1. а.
1. On January 1, 20X1, Entity A and Entity B, both public entities, incorporated Entity C by investing P3,000,000 and P2,000,000 for a capital interest ratio of 60:40. The contractual agreement of the incorporating entities provided that the decisions on relevant activities of Entity C will require unanimous consent of both entities. Moreover, Entity A and Entity B will have rights to the net assets of Entity C. The financial statements of Entity C provided the following data for 20X1: Entity C reported a net income of P1,000,000 for 20X1 and paid cash dividends of P400,000 on December 31, 20X1. During 20X1, Entity C sold inventory to Entity A with a gross profit of P50,000. 80% of those inventories were resold by Entity A to third persons during 20X1. The remainder was resold to third persons during 20X1. On July 1, 20X1, Entity C sold a piece of machinery to Entity B at a loss of P20,000. At the time of sale, the machinery has remaining useful life of two (2) years. Required: Determine the following: The investment income to be reported by Entity A for the year ended December 31, 20X1. b. The balance of Investment in Entity C to be reported by Entity B on December 31, 20X1. а.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
![1. On January 1, 20X1, Entity A and Entity B, both public entities, incorporated Entity C by investing
P3,000,000 and P2,000,000 for a capital interest ratio of 60:40. The contractual agreement of the
incorporating entities provided that the decisions on relevant activities of Entity C will require unanimous
consent of both entities. Moreover, Entity A and Entity B will have rights to the net assets of Entity C.
The financial statements of Entity C provided the following data for 20X1:
Entity C reported a net income of P1,000,000 for 20X1 and paid cash dividends of P400,000 on
December 31, 20X1.
During 20X1, Entity C sold inventory to Entity A with a gross profit of P50,000. 80% of those
inventories were resold by Entity A to third persons during 20X1. The remainder was resold to third
persons during 20X1.
On July 1, 20X1, Entity C sold a piece of machinery to Entity B at a loss of P20,000. At the time of
sale, the machinery has remaining useful life of two (2) years.
Required: Determine the following:
The investment income to be reported by Entity A for the year ended December 31, 20X1.
b.
a.
The balance of Investment in Entity C to be reported by Entity B on December 31, 20X1.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F62a6963d-1705-45b7-b8b7-371faf5acb31%2F5344b7f9-2e22-4abc-aa01-8c22bab55d42%2Fr6f0s5b_processed.png&w=3840&q=75)
Transcribed Image Text:1. On January 1, 20X1, Entity A and Entity B, both public entities, incorporated Entity C by investing
P3,000,000 and P2,000,000 for a capital interest ratio of 60:40. The contractual agreement of the
incorporating entities provided that the decisions on relevant activities of Entity C will require unanimous
consent of both entities. Moreover, Entity A and Entity B will have rights to the net assets of Entity C.
The financial statements of Entity C provided the following data for 20X1:
Entity C reported a net income of P1,000,000 for 20X1 and paid cash dividends of P400,000 on
December 31, 20X1.
During 20X1, Entity C sold inventory to Entity A with a gross profit of P50,000. 80% of those
inventories were resold by Entity A to third persons during 20X1. The remainder was resold to third
persons during 20X1.
On July 1, 20X1, Entity C sold a piece of machinery to Entity B at a loss of P20,000. At the time of
sale, the machinery has remaining useful life of two (2) years.
Required: Determine the following:
The investment income to be reported by Entity A for the year ended December 31, 20X1.
b.
a.
The balance of Investment in Entity C to be reported by Entity B on December 31, 20X1.
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