Reference no: EM132757564

Question: Currently having some trouble with this problem. Just wanted to get help. On January 1, Year 1, Amco Ltd. and Newstar Inc. formed Bearcat Resources, a joint venture. Newstar contributed miscellaneous assets with a fair value of $2,882,000 for a 70% interest in the venture. Amco contributed plant and equipment with a carrying amount of $1,200,000 and a fair value of $1,700,000, and received a 30% interest in the venture plus $465,000 in cash. On December 31, Year 1, Bearcat reported a profit of $195,000 and declared a dividend of $90,000. Amco has a December 31 year-end and will account for its 30% interest using the equity method. (Assume a 20-year useful life for the plant and equipment.)

Required: (a) Assume that the miscellaneous assets contributed by Newstar included cash of $465,000. Also, assume that the transaction had commercial substance when Amco transferred the plant and equipment to the joint venture. Record Amco's Year 1 journal entries.

1) Record the investment and transfer of asset to Bearcat.

2) Record year 1 net income.

3) Record dividend income.

4) Record gain on transfer to Bearcat

(b) Assume that there was no cash in the assets contributed by Newstar and that the cash received by Amco had been borrowed by Bearcat. Also, assume that the transaction did not have commercial substance when Amco transferred the plant and equipment to the joint venture. Record Amco's Year 1 journal entries.

1) Record the investment and transfer of asset to Bearcat.

2) Record year 1 net income.

3) Record dividend income.

4) Record gain on transfer to Bearcat.