In its 2005 annual report, Waste Management Inc. provided the following note to the financial statements: Financial

Question:

In its 2005 annual report, Waste Management Inc. provided the following note to the financial statements:
Financial Interest in Surety Bonding Company-During the third quarter of 2003, we issued a letter of credit to support the debt of a surety bonding company established by an unrelated third party to issue surety bonds to the waste industry and other industries. The letter of credit, which is valued at $24.8 million as of December 31, 2005, serves to guarantee the surety bonding company's obligations associated with its debt and represents our exposure to loss associated with our financial interest in the entity.
As of December 31, 2005, $60 million of current assets, $6 million of long-term assets, $33 million of current liabilities, $22 million of long-term debt and $11 million in minority interest have been included in our Consolidated Balance Sheet.
Required:
1. Why did Waste Management have to include $60 million of current assets, $6 million of long-term assets, $33 million of current liabilities, $22 million of long-term debt, and $11 million in minority interest in its Consolidated Balance Sheet?
2. What percentage of Surety Bonding Company's equity was owned by Waste Management?
3. At the end of 2005, Waste Management reported $3,451 million in total current assets and $3,257 million in total current liabilities. Did Waste Management's accounting treatment with respect to the Surety Bonding Company increase or decrease Waste Management's current ratio? Why might an analyst or investor be confused by this accounting treatment when considering measures of short-term liquidity?
Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Related Book For  book-img-for-question

Financial Reporting and Analysis

ISBN: 978-1259722653

7th edition

Authors: Lawrence Revsine, Daniel Collins, Bruce Johnson, Fred Mittelstaedt, Leonard Soffer

Question Posted: