E17.13. Quality Diagnostics: Gateway, Inc. (Medium) Gateway, the computer manufacturer, was a fast-growing company during the 1990s, with continual revenue and earnings growth, bringing admiration from analysts. However, in 2000 revenue growth slowed, from $8,965 million in 1999 to only $9,601 million, despite the opening of over 800 new retail outlets. Operating income was down, at $231 million (after tax) compared with $403 million in 1999. The firm trumpeted its retail expansion, which pleased analysts, and the stock remained around $60. However, in 2001, a torpedo struck. The firm took a restructuring charge of $876 million and reported an after-tax operating loss of $983 million. The stock dropped to $20. Below are some numbers reported in Gateway's 2000 10-K filing. Go through these numbers and develop diagnostics that point to a quality of earnings issue that might. forecast that earnings in 2001 would be degraded.

Accounts receivable, net: Accounts receivable Allowance for uncollectible accounts Inventory: Components and subassemblies Finished goods Property, plant, and equipment Accumulated depreciation and amortization Other assets: Financing receivables, net of allowance for losses Long-term investments Deferred income taxes Other Accrued liabilities: Warranty Other Other current liabilities: Deferred revenue Other Other long-term liabilities Deferred revenue Warranty Other 2000 (in thousands) $ 557,479 (12,724) $544,755 $ 252,085 62,984 $315,059 1,308,696 (411,282) $897,414 $ 701,659 339,143 290,596 283.924 $1,615,322 $127,770 428,553 $ 556,323 $ 116,089 34,831 $150,920 $ 62,673 54,910 23,588 $141,171 1999 $ 662,811 (16,472) $ 646.339 $ 183,321 8,849 $191,870 1,092,004 (345,344) $ 745,660 $295,812 212,865 211,921 261,548 $ 982,146 $ 142,729 466,403 $ 609,132 $ 108,603 39.699 $ 148,302 $ 61,200 47,246 19,414 $ 127,860 Total net operating assets $1,767,000 $ 681,000