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.

Blue Hamster Manufacturing 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.

Blue Hamster Manufacturing 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		$3,690	Accounts payable	$0	$0
Accounts receivable	1,688	1,350	Accruals	234	0
Inventories	4,950	3,960	Notes payable	1,328	1,250
Total current assets	$11,250	$9,000	Total current liabilities		$1,250
Net fixed assets:			Long-term debt	4,688	3,750
Net plant and equipment		$11,000	Total debt	$6,250	$5,000
			Common equity:
			Common stock	12,188	9,750
			Retained earnings		5,250
			Total common equity	$18,750	$15,000
Total assets	$25,000	$20,000	Total liabilities and equity	$25,000	$20,000

Given the information in the preceding balance sheetand assuming that Blue Hamster Manufacturing 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: Blue Hamsters net collection of inventory items increased by more than the firm's sales between Years 1 and 2.

This statement is , because:

Total inventories of raw materials, work-in-process, and final goods decreased by $990 million between Year 1 and Year 2

Total inventories of raw materials, work-in-process, and final goods increased from $3,960 million to $4,950 million between Year 1 and Year 2

The accruals balance decreased by $234 million between Years 1 and 2

Statement #2: Over the past two years, Blue Hamster Manufacturing Inc. has relied more on the use of short-term debt than on long-term debt financing.

This statement is , because:

Blue Hamsters total notes payable increased by $78 million, while its common stock account increased by $2,438 million

Blue Hamsters total current liabilities increased by $312 million, while its use of long-term debt increased by $938 million

Blue Hamsters total current liabilities decreased by $312 million, while its long-term debt account decreased by $938 million

Statement #3: The book value per share of Blue Hamsters stock in Year 2 was $375.00.

This statement is , because:

The per-share book value is calculated by dividing the companys total common equity 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 debt 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 Blue Hamster Manufacturing 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 from those carrying the largest balance to those with the smallest balance.

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