Question

Joint Venture On January 2, 2020, Adena Corporation and Dillon Corporation form a joint venture to develop a new product. Each contributes $2.5 million and has a 50 percent interest in the venture. At December 31, 2020, the joint venture balance sheet is as follow (in millions):

Cash……………………………………………. $1.8                    Debt……………………………………$8.4

Equipment………………………………….. 12.2                   Equity…………………………………. 5.6

Total…………………………………………….$14.0                    Total……………………………………$14.0

The joint venture reported net income of $600.000 during 2020. Each investor uses the equity method to report its interest in the joint venture.

Required:

Show how the joint venture is reported on each investor’s financial statements for 2020. Where are the joint venture’s individual assets and liabilities reported by venturers.

Answer 1

Investment in Joiint venture:
Beginning Investment made			2,500,000
Add: 50% share of income during 2020			300000
	(600000*50%)
Investment in Joint venture:			2800000
Both the Joint venturers will show the investment in the Joint venture as an asset to the extent of $ 2800,000 each.
Under the Equity method, the share of income earned by the corporation is added in the investment cost and any dividend paid to such venturers will get deducted from investment to be shown as assets of Joint venturer individually.
Only, Net of above amount is shown as an investment by the Joint Venturers.

answered by: anonymous