Reference no: EM132841396

John Inc and Victor Inc. formed a joint venture on January 1, 2020. John invested plant and equipment with a book value of $500,000 and a fair value of $800,000 for a 30% interest in the venture which was to be called Jinxtor Ltd.

• Victor contributed assets with a fair value of $2,000,000 (including $200,000 in cash) for its 70% stake in Jinxtor.
• Jinxtor reported a net income of $3,000,000 for 2020. John's plant and equipment were estimated to provide an additional 5 years of utility to Jinxtor. The transactions set out above were considered to be of commercial substance.
• Assume that the facts provided above with respect to the Jinxtor Joint Venture remain unchanged except that John receives $200,000 in return for investing its plant and equipment.

Problem 1: What would be the realized portion of the unrealized gain taken into income for the year ended on December 31, 2020 arising from John's investment in Jinxtor?

A) $13,500
B) Nil
C) $60,000
D) $28,500