Question

Waste Management Inc. reports the following in the 2016 Form 10-K (in millions):

	2016		2015
From the Income Statement:
Equity in net losses of unconsolidated entities	($44	)	($38	)
From the Operating section of the Cash Flow Statement:
Equity in net losses of unconsolidated entities, net of dividends	$44		$42

a.	Why does Waste Management's income statement deduct equity in net losses of the unconsolidated entities?
b.	Explain the reconciling item on Waste Management's statement of cash flow that adds back equity in net losses of unconsolidated entities.
c.	Explain why the income statement and statement of cash flow line items related to the unconsolidated subsidiaries is the same 2016? Why are the amounts different for 2015?

Answer 1

a

Consolidation is not required when ownership is not over 50% of the subsidiary. Under equity method, waste management deducted its share of unconsolidated entities net loss in income statement.

b

Loss not involves any cash outflow. When cash flow statement starts with net income (which already deducted loss) the loss amount needs to be added back to arrive at actual cash flows.

c

in 2015 there might have been 4 dividends received which are not reported in operating section of cash flow statement are first added back in addition to net loss.