Kevin Corp and Keith Corp are in the landscaping business and both operate similar operations in Southern
Question:
Kevin Corp and Keith Corp are in the landscaping business and both operate similar operations in Southern Ontario. On January 1, 2015, they formed a joint venture called Kevith Corp in a developing region in Western Ontario. On that date, Keith Corp invested assets with a fair value of $760,000 for its 60% stake in Kevith Corp. These assets consisted of $300,000 in cash and $560,000 in machinery and equipment. Kevin Corp contributed machinery and equipment with a book value of $300,000 and a fair value of $940,000 and received a 40% stake in the venture plus $500,000 in cash. At the date of formation, $300,000 was borrowed from the bank by the joint venture.
On December 31, 2015, Kevith Corp reported net income of $400,000 and declared dividends in the amount of $60,000. The machinery and equipment are estimated to have an estimated useful life of 10 years.
Required:
Prepare Kevin Corp’s equity method journal entries for 2015. Briefly explain your rationale for any initial gain allowed by GAAP upon contribution of machinery and equipment by Kevin Corp.
Financial Accounting
ISBN: 978-0078025549
3rd edition
Authors: J. David Spiceland, Wayne Thomas, Don Herrmann