Question - Applying the Accounting Equation and Assessing Financial Statement Linkages
(a) Intel had assets equal to $103,065 million and liabilities equal to $41,980 million for a recent year-end. What was Intel's total equity at year-end?
Why would we expect a company like Intel to report a relatively high proportion of equity vis-à-vis liabilities?:
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 $7,839 million and its equity was $2,529 million. During the year, assets increased by $821 million and liabilities increased by $140 million. What was JetBlue's equity at the end of the year?