1 answer

E9-36. Analyzing and Interpreting Disclosures on Equity Method Investments Cummins Inc. reports investments in affiliated companies,...

Question:

E9-36. Analyzing and Interpreting Disclosures on Equity Method Investments Cummins Inc. reports investments in affiliated com

E9-36. Analyzing and Interpreting Disclosures on Equity Method Investments Cummins Inc. reports investments in affiliated companies, consisting mainly of investments in nine manufacturing joint ventures. Cummins reports those investments on its balance sheet at $958 million and provides the following financial information on its investee companies in a footnote to its 10-K report. As of and for the years ended December 31 Equity Investee Financial Summary $ millions 2015 2014 2013 Net sales... Gross margin Net income.. $5,946 1,265 $7,426 1,539 $7,799 1,719 521 630 690 Cummins' share of net income 273 330 $325 Royalty and interest income... 42 40 36 $ 315 Total equity, royalty and interest from investees.. $370 $361 Current assets.... $2,458 1,539 $2,476 1,667 Noncurrent assets Current liabilities. (1,796) (284) (1,875) (420) Noncurrent liabilities Net assets... $1,917 $1,848 $ 958 $ 956 Cummins' share of net assets a. What assets and liabilities of unconsolidated affiliates are omitted from Cummins' balance sheet as a result of the equity method of accounting for those investments? b. Do the liabilities of the unconsolidated affiliates affect Cummins directly? Explain.

Answers

A) .

Assets = $ 958 Million

Liabilities = $ 284 Million , of unconsolidated affiliated are omitted from Cummins balancesheet as a result of the equity method of accounting for those investment.

B).

The liability of the investee company are not liabilities for the   investor.

The Creditor of the investee company have resource to the assets of the investor in the event of defaults.

The liability of the investor company are liabilities of the investee .

The liability of the investee company are liabilities for the investor.

.

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