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.

Cute Camel Woodcraft Company 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.

Cute Camel Woodcraft Company 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	$6,919	$5,535	Accounts payable	$0	$0
Accounts receivable	2,531	2,025	Accruals	352	0
Inventories	7,425	5,940	Notes payable	1,992	1,875
Total current assets	$16,875	$13,500	Total current liabilities	$2,344	$1,875
Net fixed assets:			Long-term debt	7,031	5,625
Net plant and equipment	$20,625	$16,500	Total debt	$9,375	$7,500
			Common equity:
			Common stock	18,281	14,625
			Retained earnings	9,844	7,875
			Total common equity	$28,125	$22,500
Total assets	$37,500	$30,000	Total liabilities and equity	$37,500	$30,000

Given the information in the preceding balance sheetand assuming that Cute Camel Woodcraft Company 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: Cute Camels net collection of inventory items increased by more than the firm's sales between Years 1 and 2.

This statement is incorrect , because:

Total inventories of raw materials, work-in-process, and final goods decreased by $1,485 million between Year 1 and Year 2

Total inventories of raw materials, work-in-process, and final goods increased from $5,940 million to $7,425 million between Year 1 and Year 2

The accruals balance decreased by $352 million between Years 1 and 2

Statement #2: Over the past two years, Cute Camel Woodcraft Company has relied more on the use of short-term debt than on long-term debt financing.

This statement is , because:

1.)Cute Camels total current liabilities increased by $469 million, while its use of long-term debt increased by $1,406 million

2.)Cute Camels total notes payable increased by $117 million, while its common stock account increased by $3,656 million

3.)Cute Camels total current liabilities decreased by $469 million, while its long-term debt account decreased by $1,406 million

Statement #3: The book value per share of Cute Camels stock in Year 2 was $562.50.

This statement is , because:

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

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

3.)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 on the balance sheet and the information they provide, which statement regarding Cute Camel Woodcraft Companys balance sheet is consistent with U.S. Generally Accepted Accounting Principles (GAAP)?

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

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

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