Reference no: EM132711689
On January 1, 20X5, Jestor Inc. and Victory Inc. formed a joint venture called Jesvic Ltd. Jestor invested plant and equipment with a carrying value of $500,000 and a fair value of $800,000 for a 30% interest in the venture. Victory contributed assets with a fair value of $2,000,000 (including $200,000 in cash) for a 70% stake in Jesvic. The fair value of the assets contributed by Victory was the same as their carrying value. Jesvic reported net income of $100,000 for 20X5. Jestor's plant and equipment were estimated to provide an additional five years of utility to Jesvic. Both companies pay income tax at a rate of 20%, and both companies as well as the joint venture have a December 31, 20X5, year end. Assume that the transaction has commercial substance.
Problem 1. At what amount would Victory record its investment in Jesvic on January 1, 20X5?
a) $1,400,000
b) $1,800,000
c) $1,960,000
d) $2,000,000
Problem 2. What would be the balance in Jestor's "investment in Jesvic" account on December 31, 20X5?
a) $530,000
b) $742,400
c) $758,000
d) $772,400
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