Operations Financial Services 2018 2017 2018 2017 $ $ 0.4 $ 0.2 $ 140.5 15.1 692.1 91.8 17.1 674.9 0.5 518.5 91.7 0.7 505.4 87.4 6.6 673.8 100.2 9.4 638.8 117.6 0.5 0.7 S millions Assets Current assets Cash and cash equivalents... Intersegment receivables Trade and other accounts receivable-net. Finance receivables-net.. Contract receivables-net Inventories-net..... Prepaid expenses and other assets Total current assets.. Property and equipment-net. Investment in Financial Services Deferred income tax assets Intersegment long-term notes receivable Long-term finance receivables-net. Long-term contract receivables-net Goodwill... Other intangibles-net Other assets Total assets 611.6 1.6 594.4 2.0 1,628.3 493.5 329.5 45.8 701.3 1,549.6 482.4 317.4 25.2 583.7 18.9 26.8 1,074.4 333.0 1,039.2 309.4 11.9 902.2 232.9 51.9 $4,397.3 13.2 924.1 253.7 63.1 $4,212.4 0.1 $2,039.6 $1,971.8 $ $ 183.2 177.1 1.5 15.1 $ 250.0 1.1 17.1 4.7 3.7 55.8 67.8 66.5 366.0 26.1 916.4 Liabilities and Equity Current liabilities Notes payable and current maturities of long-term debt.... $ 186.3 Accounts payable... 199.6 Intersegment payables Accrued benefits. 52.0 Accrued compensation. 66.8 Franchisee deposits 67.5 Other accrued liabilities. 355.4 Total current liabilities 927.6 Long-term debt and intersegment long-term debt. Deferred income tax liabilities.. 41.4 Retiree health care benefits 31.8 Pension liabilities 171.3 Other long-term liabilities 106.6 Total liabilities 1,278.7 Total shareholders' equity attributable to Snap-on Inc.... 3,098.8 Noncontrolling interests 19.8 Total equity.. 3,118.6 Total liabilities and equity. $4,397.3 47.4 1,647.3 29.7 301.6 1,337.3 28.4 36.0 158.9 100.4 15.4 15.5 1,240.1 1,710.1 1,654.4 317.4 329.5 2,953.9 18.4 2,972.3 $4,212.4 329.5 317.4 $1,971.8 $2,039.6 Analyzing and Interpreting Disclosures on Consolidations 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 10K report. Following is a supplement disclosure. 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 questions. 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, 2018, on the parent's balance sheet? What is the equity balance of the financial services subsidiary to which this relates as of December 31, 2018? 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 with the con- solidated financial statements? d. Recall that the parent company uses the equity method of accounting for its investment in the sub- sidiary and that this account is eliminated in the consolidated 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? Operations Financial Services 2018 2017 2018 2017 $ $ 0.4 $ 0.2 $ 140.5 15.1 692.1 91.8 17.1 674.9 0.5 518.5 91.7 0.7 505.4 87.4 6.6 673.8 100.2 9.4 638.8 117.6 0.5 0.7 S millions Assets Current assets Cash and cash equivalents... Intersegment receivables Trade and other accounts receivable-net. Finance receivables-net.. Contract receivables-net Inventories-net..... Prepaid expenses and other assets Total current assets.. Property and equipment-net. Investment in Financial Services Deferred income tax assets Intersegment long-term notes receivable Long-term finance receivables-net. Long-term contract receivables-net Goodwill... Other intangibles-net Other assets Total assets 611.6 1.6 594.4 2.0 1,628.3 493.5 329.5 45.8 701.3 1,549.6 482.4 317.4 25.2 583.7 18.9 26.8 1,074.4 333.0 1,039.2 309.4 11.9 902.2 232.9 51.9 $4,397.3 13.2 924.1 253.7 63.1 $4,212.4 0.1 $2,039.6 $1,971.8 $ $ 183.2 177.1 1.5 15.1 $ 250.0 1.1 17.1 4.7 3.7 55.8 67.8 66.5 366.0 26.1 916.4 Liabilities and Equity Current liabilities Notes payable and current maturities of long-term debt.... $ 186.3 Accounts payable... 199.6 Intersegment payables Accrued benefits. 52.0 Accrued compensation. 66.8 Franchisee deposits 67.5 Other accrued liabilities. 355.4 Total current liabilities 927.6 Long-term debt and intersegment long-term debt. Deferred income tax liabilities.. 41.4 Retiree health care benefits 31.8 Pension liabilities 171.3 Other long-term liabilities 106.6 Total liabilities 1,278.7 Total shareholders' equity attributable to Snap-on Inc.... 3,098.8 Noncontrolling interests 19.8 Total equity.. 3,118.6 Total liabilities and equity. $4,397.3 47.4 1,647.3 29.7 301.6 1,337.3 28.4 36.0 158.9 100.4 15.4 15.5 1,240.1 1,710.1 1,654.4 317.4 329.5 2,953.9 18.4 2,972.3 $4,212.4 329.5 317.4 $1,971.8 $2,039.6 Analyzing and Interpreting Disclosures on Consolidations 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 10K report. Following is a supplement disclosure. 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 questions. 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, 2018, on the parent's balance sheet? What is the equity balance of the financial services subsidiary to which this relates as of December 31, 2018? 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 with the con- solidated financial statements? d. Recall that the parent company uses the equity method of accounting for its investment in the sub- sidiary and that this account is eliminated in the consolidated 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