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		$2,767	Accounts payable	$0	$0
Accounts receivable	1,266	1,013	Accruals	176	0
Inventories	3,712	2,970	Notes payable	996	937
Total current assets	$8,437	$6,750	Total current liabilities		$937
Net fixed assets:			Long-term debt	3,515	2,813
Net plant and equipment		$8,250	Total debt	$4,687	$3,750
			Common equity:
			Common stock	9,141	7,313
			Retained earnings		3,937
			Total common equity	$14,063	$11,250
Total assets	$18,750	$15,000	Total liabilities and equity	$18,750	$15,000

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 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:

Cold Gooses total current asset balance decreased from $8,437 million to $6,750 million between Year 1 and Year 2.

Cold Gooses total current liabilities balance increased from $1,013 million to $1,266 million between Year 1 and Year 2.

Cold Gooses total current asset balance actually increased from $6,750 million to $8,437 million between Year 1 and 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 $59 million, while its common stock account increased by $1,828 million.

Cold Gooses total current liabilities decreased by $235 million, while its long-term debt account decreased by $702 million.

Cold Gooses total current liabilities increased by $235 million, while its use of long-term debt increased by $702 million.

Statement #3: The book value of one of Cold Gooses fixed assets is calculated as the original cost of the asset minus its annual depreciation expense.

This statement is , because:

An assets net book value is calculated by adding its annual depreciation expense to its total historic and installation costs.

An assets net book value is calculated by subtracting its annual depreciation expense from its total historic and installation costs.

An assets net book value is calculated by subtracting its accumulated depreciation expense from its total historic and installation costs.

Based on your understanding of the different items reported in 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 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.