Problem $9-9$

LO$2$

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 $$1,692,000$ for a $65\%$ interest in the venture. Amco contributed plant and equipment with a carrying

amount of $$1,120,000$ and a fair value of $$1,380,000,$ and received a $35\%$ interest in the venture as well as $$469,000in$ cash. On

December $31,$ Year $1,$ Bearcat reported a profit of $$199,000$ and declared a dividend of $$94,000.$ Amco has a December $31$ year$-$end

and will account for its $35\%$ 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 $$469,000.$ Also assume that the transaction had

commercial substance when Amco transferred the plant and equipment to the joint venture. Prepare Amco's Year $1$ journal

entries.

$($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. Prepare Amco's Year $1$ journal entries.