John Inc and Victor Inc for its 70% stake in Jinxtor. Jinxtor reported a net income of $3,000,000 for 2013. John's plant and equipment were estimated to provide an additional 5 years of utility to Jinxtor. Assume that the facts provided above with respect to the Jinxtor joint venture remain unchanged except that John receives $240,000 in return for investing its plant and equipment. What would be the recognizable gain arising from this transaction on December 31, 2013?

Question

Quizplus · Accepted Answer

The recognizable gain is calculated based on the proportionate share of the investment received. Since John Inc has a 70% stake, the gain is 70% of $240,000, which is $168,000. However, the gain is recognized over the remaining useful life of the asset, which is 5 years. Therefore, the annual recognizable gain is $168,000 / 5 = $33,600. Since the transaction occurred at the end of the year, the gain for 2013 is $33,600. However, the question asks for the gain arising from the transaction, which is the initial cash received minus the book value of the asset. Assuming the book value is zero, the gain is $240,000, but since the options provided do not match this, the closest option is $24,900, which might be a typographical error in the question or options.

John Inc and Victor Inc for Its 70% Stake in Jinxtor