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.

Cold Goose Metal Works 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 sheet.

Cold Goose Metal Works Inc.
Balance Sheet for Year Ending December 31
(Millions of Dollars)
	Year 2	Year 1		Year 2	Year 1
Assets			Liabilities and equity
Current assets:			Current liabilities:
Cash and equivalents		$4,612	Accounts payable	$0	$0
Accounts receivable	2,109	1,688	Accruals	293	0
Inventories	6,187	4,950	Notes payable	1,660	1,562
Total current assets	$14,062	$11,250	Total current liabilities		$1,562
Net fixed assets:			Long-term debt	5,859	4,688
Net plant and equipment		$13,750	Total debt	$7,812	$6,250
			Common equity:
			Common stock	15,235	12,188
			Retained earnings		6,562
			Total common equity	$23,438	$18,750
Total assets	$31,250	$25,000	Total liabilities and equity	$31,250	$25,000

Given the information in the preceding balance sheetand assuming that Cold Goose Metal Works 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: Cold Gooses accumulated owed financial obligations decreased from Year 1 to Year 2.

This statement is___________ , because:

The accounts payable account remained $0 for both Years 1 and 2.

Long-term debt decreased from $1,660 million at the end of Year 1 to $1,562 million by the end of Year 2.

Accruals actually increased from $0 in Year 1 to $293 million at the end of Year 2.

Statement #2: Over the past two years, Cold Goose Metal Works Inc. has relied more on the use of short-term debt than on long-term debt financing.

This statement is_____________ , because:

Cold Gooses total notes payable increased by $98 million, while its common stock account increased by $3,047 million.

Cold Gooses total current liabilities decreased by $391 million, while its long-term debt account decreased by $1,171 million.

Cold Gooses total current liabilities increased by $391 million, while its use of long-term debt increased by $1,171 million.

Statement #3: One way to interpret the change in Cold Gooses accounts receivable balance from Year 1 to Year 2 is that more customers purchased new items on credit rather than paying off existing credit accounts.

This statement is______________ , because:

The $421 million increase in accounts receivable means either that Year 1s existing credit customers are not paying off their owed balances and new or existing customers are making additional purchases on credit, or that Year 1s credit customers have repaid their owed balances and Year 2 credit sales have exceeded Year 1s credit sales.

The change from $4,950 million to $6,187 million reflects a net accumulation of new credit sales.

The decrease from $2,109 million to $1,688 million implies a net decrease in accounts receivable and that more customers are paying off their receivables balances than are buying on credit.

Based on your understanding of the different items reported on the balance sheet and the information they provide, which statement regarding Cold Goose Metal Works Inc.s balance sheet is consistent with U.S. Generally Accepted Accounting Principles (GAAP)?

The companys debts are listed in the order in which they are to be repaid.

The companys debts should be listed in order of their liquidity.

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