John Inc and Victor Inc. formed a joint venture on January 1, 2020. John invested plant and equipment with a book value of $500,000 and a fair value of $800,000 for a 30% interest in the venture which was to be called Jinxtor Ltd. Victor contributed assets with a fair value of $2,000,000 (including $200,000 in cash) for its 70% stake in Jinxtor. Jinxtor reported a net income of $3,000,000 for 2020. John's plant and equipment were estimated to provide an additional 5 years of utility to Jinxtor. The transactions set out above were considered to have commercial substance. Assuming the plant and equipment transferred by John are used to generate a positive gross profit for Jinxtor, what is the amount of the amortization of the unrealized gain for 2020 arising from the transfer of John's assets? Nil $18,000 $42,000 $60,000
John Inc and Victor Inc. formed a joint venture on January 1, 2020. John invested plant and equipment with a book value of $500,000 and a fair value of $800,000 for a 30% interest in the venture which was to be called Jinxtor Ltd. Victor contributed assets with a fair value of $2,000,000 (including $200,000 in cash) for its 70% stake in Jinxtor. Jinxtor reported a net income of $3,000,000 for 2020. John's plant and equipment were estimated to provide an additional 5 years of utility to Jinxtor. The transactions set out above were considered to have commercial substance. Assuming the plant and equipment transferred by John are used to generate a positive gross profit for Jinxtor, what is the amount of the amortization of the unrealized gain for 2020 arising from the transfer of John's assets? Nil $18,000 $42,000 $60,000
Chapter1: Financial Statements And Business Decisions
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