2. Balance sheet

The balance sheet provides a snapshot of the financial condition of a company. Investors and analysts use the information given on the balance sheet and other financial statements to make several interpretations regarding the companys financial condition and performance.

Green Caterpillar Garden Supplies Inc. is a hypothetical company. Suppose it has the following balance sheet items reported at the end of its first year of operation. For the second year, some parts are still incomplete. Use the information given to complete the balance sheets for Green Caterpillar Garden Supplies Inc. for the years ending December 31, Year 2 and 1, respectively.

Green Caterpillar Garden Supplies Inc.
Balance Sheet
For the Year ended December 31
	Year 2	Year 1		Year 2	Year 1
Assets			Liabilities and equity
Current assets:			Current liabilities:
Cash and equivalents		$73,800	Accounts payable	$0	$0
Accounts receivable	$33,750	$27,000	Accruals	$4,688	$0
Inventories	$99,000	$79,200	Notes payable	$26,562	$25,000
Total current assets	$225,000	$180,000	Total current liabilities		$25,000
Net fixed assets:			Long-term debt	$93,750	$75,000
Net plant and equipment		$220,000	Total debt	$125,000	$100,000
			Common equity:
			Common stock	$243,750	$195,000
			Retained earnings		$105,000
			Total common equity	$375,000	$300,000
Total assets	$500,000	$400,000	Total liabilities and equity	$500,000	$400,000

Given the information in the preceding balance sheetand assuming that Green Caterpillar Garden Supplies Inc. has 50 million shares of common stock outstandingread each of the following statements, then identify the selection that best interprets the information conveyed by the balance sheet.

Statement #1: Green Caterpillars pool of relatively liquid assets, which are available to support the companys current and future sales, decreased from Year 1 to Year 2.

This statement is , because:

Green Caterpillars total current liabilities balance decreased by $45,000 between Year 1 and Year 2.

Green Caterpillars total current asset balance decreased from $225,000 to $180,000 between Year 1 and Year 2.

Green Caterpillars total current liabilities balance increased from $27,000 to $33,750 between Year 1 and Year 2.

Green Caterpillars total current asset balance actually increased from $180,000 to $225,000 between Year 1 and Year 2.

Statement #2: In Year 2, Green Caterpillar Garden Supplies Inc. was profitable.

This statement is , because:

Green Caterpillars retained earnings account increased between the end of Years 1 and 2.

The cash and equivalents account increased between Years 1 and 2.

Green Caterpillars total assets increased between Years 1 and 2.

Statement #3: The book value per share of Green Caterpillars stock in Year 2 was $7,500.

This statement is , because:

The per-share book value is calculated by dividing the companys total debt by the number of outstanding shares of common stock.

The per-share book value is calculated by dividing the companys total assets by the number of outstanding shares of common stock.

The per-share book value is calculated by dividing the companys total common equity by the number of outstanding shares of common stock.

Based on your understanding of the different items reported in the balance sheet and the information they provide, which statement regarding Green Caterpillar Garden Supplies Inc.s balance sheet is consistent with U.S. Generally Accepted Accounting Principles (GAAP)?

The companys assets should be listed in alphabetical order.

The companys assets should be listed in the order in which they are to be converted into cash.

The companys assets should be listed from those carrying the largest balance to those with the smallest balance.