Question

On January 1, Year 1, Amco Ltd. and Newstar Inc. formed Bearcat Resources, a joint venture. Newstar contributed miscellaneous assets with a fair value of $825,000 for a 60% interest in the venture. Amco contributed plant and equipment with a carrying amount of $300,000 and a fair value of $1,000,000 and received a 40% interest in the venture plus $450,000 in cash. On December 31, Year 1, Bearcat reported a profit of $180,000 and declared a dividend of $75,000. Amco has a December 31 year-end and will account for its 40% interest using the equity method. (Assume a 20-year useful life for the plant and equipment.)
Required:
(a) Assume that the miscellaneous assets contributed by Newstar included cash of $450,000. Also, assume that the transaction had commercial substance when Amco transferred the plant and equipment to the joint venture. Prepare Amco's Year 1 journal entries.
(b) Assume that there was no cash in the assets contributed by Newstar and that the cash received by Amco had been borrowed by Bearcat. Also, assume that the transaction did not have commercial substance when Amco transferred the plant and equipment to the joint venture. Prepare Amco's Year 1 journal entries.


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  • CreatedJune 08, 2015
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