Taft and Luxor decided to incorporate a joint venture on January 1, 2013. On that date, Taft contributed a piece of equipment that had a carrying value of $350,000 and a fair value of $700,000 for a 60% ownership in the joint venture.
Luxor contributed $400,000 in cash for a 40% interest. Taft received $100,000 cash from the joint venture. The equipment has a four-year remaining life and is depreciated straight line. During 2013, the joint venture had net income of $30,000. Taft does not prepare consolidated financial statements. The sale is deemed to lack commercial substance.
In preparing Taft's financial statements:
(a) Calculate the balance in the Investment in Joint Venture account as at December 31, 2013.
(b) Calculate the share of profit or loss in joint venture for 2013.
(c) Calculate the amount of any gain or loss to be recorded by Taft in 2013.
(d) What would change in the calculations if the sale was deemed to have commercial substance?

  • CreatedJune 09, 2015
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