DuPont's \(200710-\mathrm{K}\) report includes information relating to the company's equity method investments ( \(\$\) millions). The following footnote reports summary balance sheets for affiliated companies for which DuPont uses the equity method of accounting. The information below is shown on a 100 percent basis followed by the carrying value of DuPont's investment in these affiliates.

a. DuPont reports its investment in equity method affiliates on its balance sheet at \(\$ 818\) million. Does this reflect the adjusted cost or fair value of DuPont's interest in these companies?

b. What is the total stockholders' equity of the affiliates at the end of 2007? What is the carrying (book value) of DuPont's investment without the advances, at the end of 2007? Approximately 'what percentage does DuPont own, on average, of these affiliates? Explain.

c. DuPont reports equity income for 2007 of \(\$(130)\) million, which includes an: "impairment charge of \(\$ 165\) million to write down the company's investment in a polyester films joint venture in the Performance Materials segment. As a result, at December 31, 2007, DuPont ceased using the equity method of accounting for three legal entities within the joint venture." Explain why DuPont ceased using the equity method to account for its investment. Why might this cessation be bothersome for our analysis and interpretation?

Transcribed Image Text:

Financial Position at December 31 (in millions) Current assets Noncurrent assets Total assets.. Short-term borrowings. Other current liabilities. Long-term borrowings Other long-term liabilities. Total liabilities... DuPont's investment in affiliates (includes advances of $27 and $58, respectively)... 2007 2006 $1,345 $1,367 1,325 1,752 $2,670 $3,119 $ 420 $ 639 689 687 82 238 118 112 $1,309 $1,676 $ 818 $ 803