Cummins Inc. (CMI) reports investments in affiliated companies, consisting mainly of investments in nine manufacturing joint ventures. Cummins reports those investments on its balance sheet at \(\$ 886\) million, and provides the following financial information of its investee companies in a footnote to its \(10-\mathrm{K}\) report:

a. What assets and liabilities of unconsolidated affiliates are omitted from Cummins' balance sheet as a result of the equity method of accounting for those investments?

b. Do the liabilities of the unconsolidated affiliates affect Cummins directly? Explain.

c. How does the equity method impact Cummins' ROE and its RNOA components (net operating asset turnover and net operating profit margin)?

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Equity Investee Financial Summary In millions Net sales... Gross margin Net income.... Cummins' share of net income Royalty and interest income... Total equity, royalty and interest income from investees.. Current assets Noncurrent assets Current liabilities. Noncurrent liabilities. Net assets. Cummins' share of net assets As of and for the years ended December 31, 2011 $8,659 1,948 788 2012 $8,296 1,870 747 $ 347 37 $384 $2,843 1,588 (2,039) (431) $1,961 $ 886 $ 375 41 $416 $2,892 1,440 (2,055) (391) $1,886 $ 885 2010 $7,107 1,651 668 $321 $ 351 30