Fuzzy Button Clothing 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 $4,612 Accounts payable $0 $0 2,109 1,688 Accruals 293 0 Accounts receivable Inventories 6,187 4,950 Notes payable 1,660 1,562 Total current assets $14,062 $11,250 Total current liabilities $1,562 Net fixed assets: Long-term debt 5,859 4,688 Net plant and equipment $13,750 Total debt $7,812 $6,250 Common equity: Common stock 15,235 12,188 Retained earnings 6,562 Total common equity $23,438 $18,750 Total assets $31,250 $25,000 Total liabilities and equity $31,250 $25,000 Given the information in the preceding balance sheet-and assuming that Fuzzy Button Clothing Company 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: Fuzzy Button's net collection of inventory items increased by more than the firm sold between Years 1 and 2. outstanding-read each of the following statements, then identify the selection that best interprets the information conveyed by the balance sheet. Statement #1: Fuzzy Button's net collection of inventory items increased by more than the firm sold between Years 1 and 2. This statement is because: O The accounts receivable balance increased by $421 million between Years 1 and 2. O Total inventories of raw materials, work-in-process, and final goods increased from $4,950 million to $6,187 million between Year 1 and Year 2. O The accruals balance decreased by $293 million between Years 1 and 2. Statement #2: In Year 2, Fuzzy Button Clothing Company was profitable. This statement is because: O Fuzzy Button's total assets increased between Years 1 and 2. O Fuzzy Button's retained earnings account increased between the end of Years 1 and 2. O The cash and equivalents account increased between Years 1 and 2. Statement #3: The book value per share of Fuzzy Button's stock in Year 2 was $468.76. This statement is because: The cash and equivalents account increased between Years 1 and 2 Statement #3: The book value per share of Fuzzy Button's stock in Year 2 was $468.76. This statement is because: O The per-share book value is calculated by dividing the company's total debt by the number of outstanding shares of common stock. The per-share book value is calculated by dividing the company's total assets by the number of outstanding shares of common stock. O The per-share book value is calculated by dividing the company's total common equity 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 Fuzzy Button Clothing Company's balance sheet is consistent with U.S. Generally Accepted Accounting Principles (GAAP)? O The company's assets should be listed in alphabetical order. O The company's assets should be listed from those carrying the largest balance to those with the smallest balance. O The company's assets should be listed in the order in which they are to be converted into cash. Fuzzy Button Clothing Company Balance Sheet for Year Ending December 31 (Millions of Dollars) Assets Current assets: Cash and equivalents Accounts receivable Inventories Total current assets Net fixed assets: Net plant and equipment Total assets Year 2 $5,766 2,109 6,187 $14,062 $17,188 $31,250 Year 1 Liabilities and equity Current liabilities: $4,612 Accounts payable 1,688 Accruals 4,950 Notes payable $11,250 Total current liabilities Long-term debt $13,750 Total debt Common equity: Common stock Retained earnings Total common equity $25,000 Total liabilities and equity Year 2 $0 293 1,660 $1,953 5,859 $7,812 15,235 8,203 $23,438 $31,250 Year 1 $0 0 1,562 $1,562 4,688 $6,250 12,188 6,562 $18,750 $25,000
