Applying the Accounting Equation and Assessing Financial Statement Linkages

Answer the following questions. (Hint: Apply the accounting equation.)

(a) Intel had assets equal to $53,095 million and liabilities equal to $11,391 million for a recent year. What was Intel's total equity at year-end?

$Answer

million

We expect a company such as Intel to carry a relatively high proportion of equity vis--vis liabilities because:

It is less risky due to its higher profitability and, therefore, reduces the willingness of debt holders to lend.

It is more risky due to technology innovation and, therefore, debt holders are less willing to lend at reasonable rates.

It is more profitable, and we know that profits increase equity.

It is less risky and can comfortably carry more equity financing.

(b) At the beginning of a recent year, JetBlue's assets were $6,020 million and its equity was $1,266 million. During the year, assets increased by $534 million and liabilities increased by $261 million. What was JetBlue's equity at the end of the year?

$Answer

million

(c) Which balance sheet account provides the link between the balance sheet and the income statement?

Cash

Net Sales

Retained Earnings

Total Equity