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	????	$6,457	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 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 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 True/False , because:

A) Cute Camels total current liabilities balance increased from $2,363 million to $2,953 million between Year 1 and Year 2

B) Cute Camels total current asset balance actually increased from $15,750 million to $19,687 million between Year 1 and Year 2

C) Cute Camels total current liabilities balance decreased by $3,937 million between Year 1 and Year 2

Statement #2: In Year 2, Cute Camel Woodcraft Company was profitable.

This statement is True/False , because:

A) Cute Camels retained earnings account increased between the end of Years 1 and 2

B) Cute Camels total assets increased between Years 1 and 2

C) The cash and equivalents account increased between Years 1 and 2

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

This statement is True/False , because:

A) Debtholders and preferred shareholders are considered residual investors

B) Common shareholders are treated as residual investors

C) Debtholders are treated as 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 Decrease/Increase/Remain the Same if the firm issues $3 million of new common stock.