X Ltd and Y Ltd

Essay

X Ltd. and Y Ltd. formed a joint venture on joint venture called XY Inc. on January 1, 2020. X Ltd. Invested contributed equipment with a book value of $600,000 and a fair value of $2,100,000 for a 50% interest in the joint venture. On December 31, 2020, XY Inc. reported a net income of $612,000. The equipment transferred has an estimated useful life of 20 years. Ignore taxes.
Assume the transaction does not have commercial substance because X Ltd. owned a similar portion of the same type of equipment both before and after the contribution to the joint venture.
The same facts apply, but in this case assume that X Ltd. Receives a 50% interest plus $390,000 in cash (which was contributed by the other joint venturer). Record the contribution of assets, the share of earnings and the realization of the gain on transfer.
With the cash provided a portion of the equipment is now considered to have been sold.
$\begin{array}{|l|l|}\hline \text { Sales proceeds } & \$ 390,000 \\\hline \text { Carry value of equipment sold } & \\\hline(\$ 390,000 / \$ 2,100,000 \times(\$ 600,000)) &\$ 111,429 \\\hline \text { Immediate gain on sale } & \$ 278,571 \\\hline\end{array}$