The following information was taken from Microsoft Corporation’s Year 2 balance sheet; .
Microsoft is one of the largest independent computer software makers in the United States.

The following is Microsoft's Year 1 balance sheet.

Required:
1. Solve for the missing values and present Microsoft's Year 2 balance sheet in good form.
2. Microsoft has recently become a customer of your firm. In fact, its accounts receivable is one of your firm's largest current assets. The amount is so large that the chief executive officer (CEO) of your firm is concerned because if Microsoft doesn’t pay in a timely fashion, your firm would experience severe cash flow problems. Use Microsoft’s balance sheet to assess Microsoft's ability to make timely payment of its current liabilities.
3. Using your Year 2 and the Year 1 balance sheets provided, compare and contrast the firm’s financial position at the end of these two years. For example, were there any major changes in Microsoft's financial position from the end of Year 1 to the end of Year 2? In what ways did the firm’s financial position improve or deteriorate over this time period?
4. Assume that you are a financial analyst. Based on the financial position of Microsoft as portrayed in the Year 1 and Year 2 balance sheets, would you advise your clients to invest in the firm’s common stock? Why or why not?
5. Before advising your clients about whether or not to purchase the common stock of Microsoft, what information beyond the Year 1 and Year 2 balance sheets would you seek?

Transcribed Image Text:

($ in millions) Total current liabilities Other current assets Equity investments Property, plant, and equipment, net Common stock and paid-in capital Other assets Cash and short-term investments Total stockholders' equity Accounts payable Retained earnings Unearned revenue Accrued compensation Accounts receivable, net Total assets Other current liabilities June 30, Year 2 $ 5,730 ? 1,505 ? 260 13,927 759 7,622 ? 359 1,460 ? 809 Preferred stock 980 Total current assets 15,889 Income taxes payable 915 Total liabilities and stockholders' equity 22,357