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 sheet.

Green Caterpillar Garden Supplies 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		$6,457	Accounts payable	$0	$0
Accounts receivable	2,953	2,363	Accruals	410	0
Inventories	8,662	6,930	Notes payable	2,324	2,187
Total current assets	$19,687	$15,750	Total current liabilities		$2,187
Net fixed assets:			Long-term debt	8,203	6,563
Net plant and equipment		$19,250	Total debt	$10,937	$8,750
			Common equity:
			Common stock	21,328	17,063
			Retained earnings		9,187
			Total common equity	$32,813	$26,250
Total assets	$43,750	$35,000	Total liabilities and equity	$43,750	$35,000

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 increased from $2,363 million to $2,953 million between Year 1 and Year 2

Green Caterpillars total current asset balance actually increased from $15,750 million to $19,687 million between Year 1 and Year 2

Green Caterpillars total current liabilities balance decreased by $3,937 million between Year 1 and Year 2

Statement #2: On December 31 of Year 2, Green Caterpillar Garden Supplies Inc. had $8,072 million of actual money that it could have spent immediately.

This statement is , because:

The funds recorded in Green Caterpillars accounts receivable account represents funds that are either cash or can be converted into cash almost immediately

Green Caterpillars Year 2 cash and equivalents balance is $20,317

The funds recorded in Green Caterpillars cash and equivalents account represents funds that are either cash or can be converted into cash almost immediately

Statement #3: If Green Caterpillar ever goes bankrupt, its common stockholders will be paid off first, then its debtholders and preferred stockholders.

This statement is , because:

Debtholders are treated as residual investors

Common shareholders are treated as residual investors

Debtholders and preferred shareholders are considered residual investors

Based on your understanding of the different items reported on the balance sheet and the information they provide, if everything else remains the same, then the cash and equivalents item on the current balance sheet is likely to if the firm issues $3 million of new common stock.