Question

Research Activity

Media General, Inc. is an independent, publicly owned communications company with interests in metropolitan newspapers, broadcast television, cable television, newsprint production, and diversified information services located primarily in the Southeast United States. Its 1998 annual report reported the following as a portion of its disclosure note related to investments:

Note 3: Investments in Unconsolidated Affiliates                              

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Summarized financial information for these investments accounted for by the equity method follows:

Southeast Paper Manufacturing Company:

(In thousands)                                                                          1998               1997

Current assets                                                                    $ 79,434          $ 74,667

Noncurrent assets                                                              294,628           318,478

Current liabilities                                                                 66,946             65,392

Noncurrent liabilities                                                           74,765           118,894

(In thousands)                                                                          1998                1997                                                                                                  1996

Net sales                                                                          $ 255,248        $ 246,468     $ 277,543

Gross profit                                                                         66,945             56,183                                                                                               93,150

Net income                                                                           38,493             25,002                                                                                               58,525

Company's equity in net income                                          12,831               8,334                                                                                               19,508

To Do

Without access to other information reported by Media General in the annual report, please estimate Media General’s percentage ownership interest in Southeast Paper Manufacturing Company. Assuming Southeast Paper Manufacturing Company declared no cash dividends during 1998, what was the change in Media General’s investment account related to Southeast Paper Manufacturing Company?

Points to note

Because Media General’s equity in the investee’s net income ($12,831,000) is one-third the investee’s net income ($38,493,000), we can assume it has a one-third investment interest. This, in fact, is the case as stated in Media General’s annual report.

Media General’s investment account related to Southeast Paper Manufacturing Company would increase by $12,831,000.

Answer 1

1) Media General’s equity in net income of Southeast Paper Manufacturing Company for year 1998 is $12,831,000 and total net income $38,493,000 by taking the pecentage of share of profit, we can assume it is the  percentage ownership interest in Southeast Paper Manufacturing Company of Media Genearal.

So, $12,831,000 / $38,493,000 X 100 = 33.33%

2) Media General’s investment account related to Southeast Paper Manufacturing Company would increase by $12,831,000 as it is increase in valuation of investment made by the compny, it is assumed that the Southeast Paper Manufacturing Stocks are not listed in stock market.