Accounting for joint ventures. Smithfield Foods produces and processes beef, pork, and other meat products. It operates through 50/50 joint ventures with other consumer foods companies for sales in certain markets. Smithfield Foods accounts for its investments in the joint ventures using the equity method. The excess of the carrying value of these investments over Smithfield Foods proportionate interest in the shareholders' equity of the joint ventures relates to brand names, which Smithfield Farms does not amortize. Exhibit 13.19 presents selected balance sheet and income statement information for Smithfield Foods and for its joint ventures on December 31, 2007.

a. Prepare a balance sheet and income data for Smithfield Foods and its investments in the joint ventures in three columns, as follows:

Column (1): Equity method (given in Exhibit l3.I9.
Column (2): Proportionate consolidation.
Column (3): Full consolidation, with separate disclosure of the interest of the other joint owners.
b. Compute the following ratios for each of the three accounting methods in part a:
(1) Liabilities-to-assets ratio
(2) Debt-equity ratio
(3) Net income to sales ratio
c. Which accounting method do you think best portrays the operating relations between Smithfield Foods and its jointventures?

Transcribed Image Text:

Selected Information for Smithfield Foods and Joint Ventures (amounts in millions) (Problem 33) EXHIBIT 13.19 Smithfield Foods Joint Ventures BALANCE SHEET ASSETS $ 2,733.7 Current Assets $ 1,367.9 Investments in Joint Vernture 420.8 Other Noncurrent Assets 3,814.1 $ 6,968.6 703.4 Total Assets.... $ 2,071.3 LIABILITIES AND SHAREHOLDERS EQUITY Current Liabilities ... $ 1,361.2 %24 947.5 Noncurrent Liabilities. 3,352.7 893.8 $ 4,713.9 2,254.7 6,968.6 $ 1,841.3 Total Liabilities Shareholders' Equity 230.0 $ 2,071.3 Total Liabilities and Shareholders' Equity. INCOME STATEMENT $ 11,911.1 Sales ... $ 2,912.8 Equity in Earnings of Joint Venture 10.9 Expenses.. (11,733.6) (2,891.0) Net Income . 188.4 21.8