Using Financial Reports: Analyzing the Balance Sheet
Recent balance sheets of Gateway, Inc., producer and marketer of a broad range of personal Gateway, Inc. computers, consumer electronic products, and related tools and services, are provided.
Required:
1. Is Gateway a corporation, sole proprietorship, or partnership? Explain the basis of your answer.
2. Use the company’s balance sheet to determine the amounts in the accounting equation (A = L + SE) for 2006.
3. Calculate the company’s financial leverage ratio for 2006. Interpret the ratio that you calculated. What other information would make your interpretation more useful?
4. Give the journal entry the company will make in 2007 when it pays its 2006 accrued liabilities.
5. Does the company appear to have been profitable over its years in business? On what account are you basing your answer? Assuming no dividends were paid, how much was net income (or net loss) in 2006? If it is impossible to determine without an income statement, state so.
GATEWAY INC. Consolidated Balance Sheets December 31, 2006 and 2005 (dollars in millions) | ||
| 2006 | 2005 |
Assets |
|
|
Current assets |
|
|
Cash and cash equivalents | $ 346 | $ 422 |
Marketable securities (investments) | 71 | 163 |
Accounts receivable | 522 | 559 |
Inventory | 97 | 219 |
Other | 216 | 211 |
Total current assets | 1,252 | 1.574 |
Property, plant and equipment, net | 111 | 83 |
Intangibles | 267 | 245 |
Other assets | 26 | 19 |
| $1,656 | $1,921 |
Liabilities and Stockholders’ Equity |
|
|
Current liabilities |
|
|
Accounts payable | $ 613 | $ 762 |
Accrued liabilities | 159 | 178 |
Accrued royalties | 55 | 68 |
Other current liabilities | 192 | 297 |
Total current liabilities | 1,019 | 1,305 |
Other long-term obligations | 366 | 361 |
Total liabilities | 1,385 | 1.666 |
Stockholders’ equity |
|
|
Contributed capital | 974 | 972 |
Retained earnings (accumulated deficit) | (703) | (717) |
Total stockholders’ equity | 271 | 255 |
| $1,656 | $1,921 |
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