FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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1) John Inc and Victor Inc. formed a joint venture on January 1, 2020.
John Inc. invested plant and equipment with a book value of $600,000 and a fair value of $950,000 for a 25% interest in the venture which was to be called Jinxtor Ltd. John Inc.’s plant and equipment was estimated to provide an additional 7 years of utility to Jinxtor.
Victor Inc. contributed assets with a fair value of $1,500,000 (including $150,000 in cash) for its 75% stake in Jinxtor.
John receives $100,000 in return for investing its plant and equipment.
Jinxtor reported a net income of $4,500,000 for 2020. The transactions set out above were considered to have commercial substance.
Required: Answer the following questions related to the above.
A) What amount would John record its initial investment in Jinxtor.
B) What would be the unrealized gain on January 1, 2020 arising from John's investment in Jinxtor.
What would be the realized portion of the unrealized gain taken into income for the year ended on December 31, 2020 arising from John's investment in Jinxtor.
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