In the following table, General Electric’s Balance Sheet from its 2010 annual report is shown. There are six columns of numbers. In the first two columns, GE’s consolidated balance sheets for 2010 and 2009, respectively, are reported. The middle set of columns (listed under GE) represents GE’s unconsolidated balance sheet, which treats all controlled subsidiaries as investments. Finally, the last two columns, listed under GECS (General Electric Credit Services), represent the balance sheet for GE’s 100% owned subsidiary, GECS.

Required:

A. Examine the middle set of columns showing GE’s unconsolidated numbers. GE reports $68,984 as the investment in GECS. Which method does GE use to account for this investment, cost or equity method? Explain your answer.

B. Compare the consolidated totals for assets, liabilities, and equity to the totals for GE’s numbers unconsolidated. Which totals are different between the consolidated and the unconsolidated numbers? Explain why some numbers are the same when consolidated and why some numbers are different.

C. If the acquisition were to result in noncontrolling interest (NCI) under current GAAP, how would that NCI be valued in the consolidated balance sheet?
a. NCI percentage times the book value of identifiable net assets
b. NCI percentage times the fair value of identifiable net assets
c. NCI percentage times the book value of tangible net assets
d. NIC percentage times the fair value of tangible net assets

D. In addition to reporting the consolidated numbers, GE also reports separate information on GE and GECS. What do we learn from this increased disclosure beyond what we might learn if only the consolidated numbers were reported? Suppose that GE reported on GECS using the equity method and did not consolidate the subsidiary. Would this be misleading to the users of the financial statements? Why, or why not?

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Assets Cash and equivalents Investment securities Current receivables Inventories Financing receivables-net Other GECS receivables Property, plant and equipment-net Investment in GECS Intangible assets-net All other assets Assets of discontinued operations and assets held for sale Total assets Liabilities and Equity Short-term borrowings Accounts payable, principally trade accounts Progress collections and price adjustments accrued Dividends payable Other GE current liabilities Other borrowings General Electric (GE) 2005 Balance Sheet Consolidated Long-term borrowings Investment contracts, insurance liabilities, and insur- ance annuity benefits All other liabilities Deferred income taxes Liabilities of discontinued operations and liabilities of assets held for sale Total liabilities 2010 2009 2010 $78,958 $ 70,488 $ 19,241 51,343 19 16,458 11,987 319,247 14,056 68,970 43,938 18,621 11,526 310,055 8,951 66,214 74,446 96,342 42,165 $751,216 $117,959 14,657 11,142 1,563 11,396 67,358 293,323 29,582 54,844 2,840 16,047 2,307 627,018 76,827 103,286 49,239 $781,901 $129,869 19,527 12,192 1,141 13,386 37,402 336,172 31,641 58,776 GE 2,081 6,092 8,486 656,765 10,383 11,460 12,444 68,984 44,968 17,454 $ 456 11,620 11,841 1,563 11,396 9,656 2009 $ 8,654 30 9,818 11,916 33,810 34,036 $218,763 $209,942 15,619 95,729 12,495 70,833 45,063 17,097 11,681 37,815 35,232 (4,237) (4,620) GECS 6,200 86,854 2010 2009 $ 60,272 $ 62,584 43,921 51,315 66 319,277 14,299 53,770 $ 504 $118,797 10,373 7,036 12,957 1,141 13,386 29,478 79,240 8,355 $608,678 67,358 284,407 29,993 21,127 7,077 2,735 538,530 71 326,941 18,631 56,475 31,764 87,340 15,203 $650,324 $130,754 13,099 37,402 325,429 32,009 23,671 6,701 8,378 577,443