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. What would be the amount of the unrealized gain?
John Inc and Victor Inc. formed a joint venture on January 1, 2016. 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 2016. 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.
A) Nil B) $67,500 C) $225,000 D) $142,500
B) $67,500
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