ABC and XYZ enter into a contract to set up a separate vehicle (entity 123) for the purpose of operating a tennis court. The contractual arrangement between the parties establishes joint control of the activities of the tennis court. Entity 123, and not ABC or XYZ, has rights to the assets and obligations to the liabilities of the arrangement. The following transactions of the joint arrangement occurred during 2022 and 2023: 2022: • Received P5,000,000 each from the parties in the joint arrangement as initial investment . Costs of incorporation paid amounted to P200,000 • Acquired land at a cost of P2,000,000, cash • Various costs to construct the tennis courts incurred and paid amounted to P6,000,000 • Office equipment purchased on account, P500,000 • Rental income collected from tennis players, P4 million • Various operating costs paid amounted to P300,000 2023: • Operating costs paid amounted to 500, 000 • Rental income collected from tennis players, P6 million Partial payment on the office equipment, P200,00( . Declared and paid cash dividends, P1,500,000 Based on the policy of entity 123, the tennis courts are to be depreciated over 25 years while the equipment are to be depreciated over 5 years. Newly acquired depreciable assets are to be depreciated for a full year in the year of acquisition and not depreciated on the year of disposition. How much is the net income (loss) of entity 123 for the year ended 2022 and 2023?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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ABC and XYZ enter into a contract to set up a separate vehicle (entity 123) for the purpose of operating a tennis court. The contractual arrangement between the parties establishes joint control of the activities of the tennis court. Entity 123, and not ABC or XYZ, has rights to the assets and obligations to the liabilities of the arrangement. The following transactions of the joint arrangement occurred during 2022 and 2023: 2022: • Received P5,000,000 each from the parties in the joint arrangement as initial investment . Costs of incorporation paid amounted to P200,000 • Acquired land at a cost of P2,000,000, cash • Various costs to construct the tennis courts incurred and paid amounted to P6,000,000 • Office equipment purchased on account, P500,000 • Rental income collected from tennis players, P4 million • Various operating costs paid amounted to P300,000 2023: • Operating costs paid amounted to 500, 000 • Rental income collected from tennis players, P6 million Partial payment on the office equipment, P200,00( . Declared and paid cash dividends, P1,500,000 Based on the policy of entity 123, the tennis courts are to be depreciated over 25 years while the equipment are to be depreciated over 5 years. Newly acquired depreciable assets are to be depreciated for a full year in the year of acquisition and not depreciated on the year of disposition. How much is the net income (loss) of entity 123 for the year ended 2022 and 2023? AND How much is the Cash and PPE- JO to be reported by ABC as of December 31, 2023?

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