# This exercise summarizes the accounting for investments. Suppose YouTube.com owns the following…

This exercise summarizes the accounting for investments. Suppose YouTube.com owns the following investments at December 31, 20X1:

a. 100% of the common stock of YouTube United Kingdom, which holds assets of £800,000 and owes a total of £600,000. At December 31, 20X1, the current exchange rate of the pound (£) is £1 = \$2.00. The translation rate of the pound applicable to stockholders’ equity is £1 = \$1.60. During 20X1, YouTube United Kingdom earned net income of £100,000 and the average exchange rate for the year was £1 = \$1.95. YouTube United Kingdom paid cash dividends of £40,000 during 20X1.

b. Investments that YouTube is holding to sell. These investments cost \$900,000 and declined in value by \$400,000 during 20X1, but they paid cash dividends of \$16,000 to YouTube. One year ago, at December 31, 20X0, the market value of these investments was \$1,100,000.

c. 25% of the common stock of YouTube Financing Associates. During 20X1, YouTube Financing earned net income of \$300,000 and declared and paid cash dividends of \$80,000. The carrying amount of this investment was \$700,000 at December 31, 20X0.

❙ Required

1. Which method is used to account for each investment? (pp. 540–541, 544, 547–548)

2. By how much did each of these investments increase or decrease YouTube’s net income during 20X1? (pp. 543, 546, 550)

3. For investments b and c, show how YouTube would report these investments on its balance sheet at December 31, 20X1. (pp. 540–541, 546)

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