Ch 03: Assignment - Financial Statements, Cash Flow, and Taxes 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 company's 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 $6,457 Accounts payable $0 $0 Accounts receivable 2,363 Accruals 410 0 2,953 8,662 Inventories 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 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 $6,457 Accounts payable $0 $0 Accounts receivable 2,363 Accruals 410 0 Inventories 2,953 8,662 $19,687 Notes payable 2,324 2,187 6,930 $15,750 Total current assets Total current liabilities $2,187 6,563 Net fixed assets: Long-term debt 8,203 Net plant and equipment $19,250 Total debt $10,937 $8,750 Common equity: Common stock 21,328 17,063 9,187 Retained earnings Total common equity $32,813 $26,250 $35,000 Total assets $43,750 $35,000 Total liabilities and equity $43,750 Given the information in the preceding balance sheet-and assuming that Blue Hamster Manufacturing Inc. has 50 million shares of common stock outstanding-read each of the following statements, then identify the selection that best interprets the information conveyed by the balance sheet. Statement #1: Blue Hamster's 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 $1,732 million between Year 1 and Year 2 Total inventories of raw materials, work-in-process, and final goods increased from $6,930 million to $8,662 million between Year 1 and Year 2 The accruals balance decreased by $410 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. his statement is because: Blue Hamster's total notes payable Increased by $137 million, while its common stock account increased by $4,265 million Blue Hamster's total current liabilities increased by $547 million, while its use of long-term debt increased by $1,640 million Blue Hamster's total current liabilities decreased by $547 million, while its long-term debt account decreased by $1,640 million Statement #3: The book value of one of Blue Hamster's fixed assets is calculated as the original cost of the asset minus its annual depreciation expense. This statement is because: An asset's net book value is calculated by subtracting its accumulated depreciation expense from its total historic and installation costs An asset's net book value is calculated by subtracting its annual depreciation expense from its total historic and installation costs An asset's net book value is calculated by adding its annual depreciation expense to its total historic and installation costs 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 increases the dividends paid on its common stock