Suppose Play Space owns the following investments at December 31, 2016: a. 100% of the common stock

Question:

Suppose Play Space owns the following investments at December 31, 2016:

a. 100% of the common stock of Play Space United Kingdom, which holds assets of £700,000 and owes a total of £400,000. At December 31, 2016, the current exchange rate of the pound (£) is £1 = $1.99. The translation rate of the pound applicable to stockholders' equity is £1 = $1.61. During 2016, Play Space United Kingdom earned net income of £110,000, and the average exchange rate for the year was £1 = $1.90. Play Space United Kingdom declared and paid cash dividends of £60,000 during 2016.

b. Investments that Play Space is holding to sell beyond the current period. These investments compose less than 20% of the voting stock in the investee. They cost $750,000 and declined in value by $300,000 during 2016, but they paid cash dividends of $18,000 to Play Space. One year ago, at December 31, 2015, the fair value of these investments was $1,000,000.

c. 45% of the common stock of Play Space Financing Associates. During 2016, Play Space Financing earned net income of $1,000,000 and declared and paid cash dividends of $50,000.'The carrying amount of this investment was $700,000 at December 31, 2015.

Requirements

1. Which method is used to account for each investment?

2. By how much did each of these investments increase or decrease Play Space's net income during 2016?

3. For investments b and c, show how Play Space would report these investments on its balance sheet at December 31, 2016.

Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on... Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial... Exchange Rate
The value of one currency for the purpose of conversion to another. Exchange Rate means on any day, for purposes of determining the Dollar Equivalent of any currency other than Dollars, the rate at which such currency may be exchanged into Dollars...