Snap-on Incorporated consists of two business units: the manufacturing company (parent corporation) and a wholly-owned finance subsidiary. These two units are consolidated in Snap-on's 10-K report. Following is a supplemental disclosure that Snap-on includes in its 10-K report that shows the separate balance sheets of the parent and the subsidiary. This supplemental disclosure is not mandated under GAAP, but is voluntarily reported by Snap-on as useful information for investors and creditors. Using this disclosure, answer the following requirements:

Required

a. Do the parent and subsidiary companies each maintain their own financial statements? Explain. Why does GAAP require consolidation instead of separate financial statements of individual companies?

b. What is the balance of Investments in Financial Services as of December 31, 2012, on the parent's balance sheet? What is the equity balance of the financial services subsidiary to which this relates as of December 31, 2012? Do you see a relation? Will this relation always exist?

c. Refer to your answer for part \(a\). How does the equity method of accounting for the investment in the subsidiary obscure the actual financial condition of the parent company as compared to the consolidated financial statements?

d. Recall that the parent company uses the equity method of accounting for its investment in the subsidiary, and that this account is eliminated in the consolidation process. What is the relation between consolidated net income and the net income of the parent company? Explain.

e. What is the implication for the consolidated balance sheet if the fair value of the Financial Services subsidiary (subsequent to acquisition) is greater than the book value of its stockholders' equity?

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(Amounts in millions) ASSETS Current assets Cash and cash equivalents... Intersegment receivables. Trade and other accounts receivable-net. Finance receivables-net.. Contract receivables-net Inventories-net.... Deferred income tax assets Prepaid expenses and other assets. Total current assets..... Property and equipment-net Investment in Financial Services Deferred income tax assets Long-term finance receivables-net. Long-term contract receivables-net.. Goodwill... Other intangibles-net Other assets. Total assets... Operations* 2012 $211.2 14.1 497.5 7.4 404.2 68.8 88.3 1,291.5 373.2 165.3 110.2 - 12.1 807.4 2011 $181.1 $ 3.3 $4.5 10.8 463.3 - 6.5 386.4 90.0 78.1 1,216.2 351.9 142.0 119.8 - 9.1 795.8 Financial Services 2012 2011 187.2 188.3 65.3 83.7 $3,012.2 $2,906.8 0.4 323.1 55.3 - 13.0 1.0 396.1 2.0 0.2 494.6 182.3. - - 1.1 - 0.2 277.2 43.2 - 2.6 0.9 328.6 1.0 - 5.4 431.8 156.0 - 1.0 $1,076.3 $923.8