Question: Effect of Transactions Under the Equity Method Chevron Corporation engages in fully integrated petroleum operations, chemicals operations, mining operations, power generation, and energy services. It accounts for its investments in affiliated companies by the equity method. The following balances were reported (in millions)
December 31
2011 2010
Investments in equity affiliates $22,150 $20,816
Chevron's equity in the earnings of affiliated companies in 2011 was $7,363 million. Assume that there was no additional investment in affiliates during 2011. Chevron had pretax income in 2011 of $47,634 million.
1. How much did Chevron receive in dividends from its equity affiliates in 2011?
2. What pretax income would Chevron have reported if it did not have an interest in the affiliated companies? What proportion of Chevron's pretax income came from the affiliated companies?
3. Suppose that, instead of the number you calculated in number 1, Chevron received $3,000 million in dividends from its affiliated companies in 2011. What income would Chevron recognize from its affiliated companies in 2011?