General Mills invests in a number of joint ventures to manufacture and distribute its food products as

Question:

General Mills invests in a number of joint ventures to manufacture and distribute its food products as discussed in the following footnote to its fiscal year 2007 10-K report:

Investments in Joint Ventures We have a 50 percent equity interest in Cereal Partners Worldwide. We have a 50 percent equity interest in CPW that manufactures and markets ready-to-eat cereal products in more than 130 countries and republics outside the United States and Canada . . . We have 50 percent equity interests in Häagen-Dazs Japan, Inc. and Häagen-Dazs Korea Company Limited . . . These joint ventures manufacture, distribute and market Häagen-Dazs frozen ice cream products and novelties... We also have a 50 percent equity interest in Seretram, a joint venture for the production of Green Giant canned corn in France . . . We have a 50 percent equity interest in 8th Continent, LLC, a domestic joint venture to develop and market soy-based products . . .
Fiscal 2005 results of operations includes our share of the after-tax earnings of SVE through the date of its termination on February 28, 2005 ... In February 2006, CPW announced a restructuring of its manufacturing plants in the United Kingdom. Our after-tax earnings from joint ventures were reduced by $\$ 8$ million in each of fiscal 2007 and 2006 for our share of the restructuring costs, primarily accelerated depreciation and severance.
Our cumulative investment in these joint ventures was $\$ 295$ million at the end of fiscal 2007 and $\$ 186$ million at the end of fiscal 2006. Our investments in these joint ventures include aggregate advances of $\$ 158$ million as of May 27, 2007 and $\$ 48$ million as of May 28, 2006. Our sales to these joint ventures were $\$ 32$ million in fiscal 2007 , $\$ 35$ million in fiscal 2006 , and $\$ 47$ million in fiscal 2005. We made net investments in the joint ventures of $\$ 103$ million in fiscal 2007, $\$ 7$ million in fiscal 2006 , and $\$ 15$ million in fiscal 2005 . We received dividends from the joint ventures of $\$ 45$ million in fiscal 2007, $\$ 77$ million in fiscal 2006, and $\$ 83$ million in fiscal 2005 .
Summary combined financial information for the joint ventures (including income statement information for SVE through the date of its termination on February 28, 2005) on a 100 percent basis follows:

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a. How does General Mills account for its investments in joint ventures? How are these investments reflected on General Mills' balance sheet, and how generally is income recognized on these investments?

b. General Mills reports the total of all of these investments on its May 27, 2007, balance sheet at $\$ 137$ million net of advances. Approximately what percent of these joint ventures does General Mills own, on average?

c. Does the $\$ 137$ million investment reported on General Mills' balance sheet sufficiently reflect the assets and liabilities required to conduct these operations? Explain.

d. Do you believe that the liabilities of these joint venture entities represent actual obligations of General Mills? Explain

e. What potential problem(s) does equity method accounting present for analysis purposes?

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