dell inc headquartered in austin texas is the global leader 242701

Dell Inc., headquartered in Austin, Texas, is the global leader in selling computer products and services.

The following is Dell’s (simplified) balance sheet from a recent year.

DELL INC.

Balance Sheet

at February 3, 2006

(dollars in millions)

Assets

Current assets

Cash ………………………………………..$ 7,042

Short-term investments ……………………. 2,016

Receivables and other assets ………………. 5,452

Inventories …………………………………. 576

Other ……………………………………….. 2,620

17,706

Noncurrent assets

Property, plant, and equipment …………….. 2,005

Long-term investments …………………….. 2,691

Other noncurrent assets …………………….. 707

Total assets ………………………………… $23,109

Liabilities and Stockholders’ Equity

Current liabilities

Accounts payable ……………………………$ 9,840

Other short-term obligations ………………… 6,087

15,927

Long-term liabilities ………………………… 3,053

Stockholders’ equity

Contributed capital …………………………… 284

Retained earnings …………………………….. 3,845

Total stockholders’ equity and liabilities …… $23,109

Assume that the following transactions (in millions of dollars) occurred during the remainder of 2006 (ending on January 28, 2007):

a. Issued additional shares of stock for $200 in cash.

b. Borrowed $30 from banks due in two years.

c. Purchased additional investments for $13,000 cash; one-fifth were long term and the rest were short term.

d. Purchased property, plant, and equipment; paid $875 in cash and $1,410 with additional long-term bank loans.

e. Lent $250 to affiliates, who signed a six-month note.

f. Sold short-term investments costing $10,000 for $10,000 cash.

g. Dell does not actually pay dividends; it reinvests its earnings into the company for growth purposes.

Assume instead for this problem that Dell declared and paid $52 in dividends during 2006.

Required:

1. Prepare a journal entry for each transaction.

2. Create T-accounts for each balance sheet account and include the February 3, 2006, balances.

Post each journal entry to the appropriate T-accounts.

3. Prepare a balance sheet from the T-account ending balances for Dell at January 28, 2007, based on these transactions.

4. Compute Dell’s financial leverage ratio for 2006 (year ending on January 28, 2007). What does this suggest about the company?

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