X Ltd. and Y Ltd. formed a joint venture called XY Inc. on January 1, 2020. X Ltd. 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. X Ltd. also received $400,000 in cash for its contribution of equipment to the joint venture. On December 31, 2020, XY Inc. reported a net income of $612,000. XY Inc. paid dividend of $ 30,000 for 2020. The equipment transferred has an estimated useful life of 20 years. Ignore taxes. (Assume that the transaction has no commercial substance)

Required:

1. Calculate the gain on the contribution of equipment; (2)

2. prepare the journal entries in the book of X Ltd. to record the events on January 1 and December 31, 2020. (8)

C.

A venture invested non-monetary assets in the formation of a new joint venture and did not receive any monetary consideration. The fair value of the assets invested was greater than the carrying amount in the accounting records of the venture. Explain how the venture should account for the investment.