Recent balance sheets of Gateway, Inc., producer and marketer of a broad range of personal 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, stateso.

Transcribed Image Text:

GATEWAY INC. Consolidated Balance Sheets December 31, 2006 and 2005 (dollars in millions) 2006 2005 Assets Current assets Cash and cash equivalents Marketable securities (investments) Accounts receivable 346 71 522 97 216 1,252 S 422 163 559 219 211 1.574 83 245 19 $1,921 Other Total current assets Property, plant and equipment, net Intangibles Other assets 267 26 $1.656 Liabilities and Stockholders' Equity Current liabilities 613 159 S 762 178 68 297 1,305 361 1,666 Accounts payable Accrued liabilities Accrued royalties Other current liabilities 192 019 366 1.385 Total current liabilities Other long-term obligations Total liabilities Stockholders' equity Contributed capital Retained carnings (accumulated deficit) 974 703) 271 1,656 972 (717) 255 S1,921 Total stockholders' equity