Reference no: EM132925155
Question - On January 1, 2018, Spring Inc. entered into a new joint venture Jump Inc. (JI) and obtained a 30% interest in the venture by contributing cash of $20,000 and a patent with a fair value of $100,000 (book value $40,000, remaining useful live of 15 years). Spring booked the gain on the sale of patent in 2018 and books any required adjustments needed directly to the investment/equity method income.
During 2020, Spring sold JI inventory of which $20,000 remains in inventory of JI at December 31, 2020. Spring sells to JI for a gross profit of 45%.
JI reported net income of $62,000 and declared and paid total dividends of $23,000 in 2020. At December 31, 2020, JI had retained earnings of $220,000.
Spring uses the equity method to record the investment in JI. Tax rate is 20%, Spring follows IFRS.
Required - Show and label all calculations.
1) Calculate the:
a) Investment in JI value on the balance sheet of Spring at December 31, 2020.
b) Equity method income/(loss) related to JI for 2020 reported by Spring.
2) Prepare the journal entry to record 1(b) for 2020 on the books of Spring.
3) Assume instead that Spring's investment in Jump Inc. was a joint operation. How would the effect on 2020 net income for Spring be different from 1(b)? Would Spring's income statement look different?