Jason Inc and Vlad Inc. formed a joint venture on January 1, 2022. Jason Inc. invested plant
Question:
Jason Inc and Vlad Inc. formed a joint venture on January 1, 2022. Jason 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. Jason Inc.’s plant and equipment was estimated to provide an additional 7 years of utility to Jinxtor.
Vlad Inc. contributed assets with a fair value of $1,500,000 (including $150,000 in cash) for its 75% stake in Jinxtor.
Jason receives $100,000 in return for investing in its plant and equipment.
Jinxtor reported a net income of $5,500,000 for 2022. The transactions set out above were considered to have commercial substance.
REQUIRED:
Answer the following questions related to the above.
a) What amount would Jason record its initial investment in Jinxtor.
b) What would be the unrealized gain on January 1, 2022 arising from Jason's investment in Jinxtor.
c) What would be the realized portion of the unrealized gain taken into income for the year ended on December 31, 2022 arising from Jason's investment in Jinxtor.