Green Caterpillar Garden Supplies Inc. Balance Sheet for Year Ending December 31 (Millions of Dollars) Year 2 Year 1 Year 2 Year 1 Assets $2,767 $0 $0 $3,459 1,266 176 0 Current assets: Cash and equivalents Accounts receivable Inventories Total current assets Net fixed assets: Net plant and equipment 1,013 2,970 937 3,712 $8,437 $6,250 $937 Liabilities and equity Current liabilities: Accounts payable Accruals Notes payable Total current liabilities Long-term debe Total debt Common equity: Common stock Retained earnings Total common equity Total liabilities and equity 996 $1,172 3,515 $4,687 2,813 $10,313 $8,250 $3,750 9,141 7,313 3,937 4,922 $14,063 $18,750 $11,250 $15,000 Total assets $18,750 $15,000 Given the information in the preceding balance sheet-and assuming that Green Caterpillar Garden Supplies 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: Green Caterpillar's accumulated owed financial obligations decreased from Year 1 to Year 2 This statement is false, because: The accounts payable account remained so for both Years 1 and 2 O Accruals actually increased from so in Year 1 to $176 million at the end of Year 2. Long-term debt decreased from $996 million at the end of Year 1 to $937 million by the end of Year 2 Statement #2: On December 31 of Year 2, Green Caterpillar Garden Supplies Inc. had $3,459 million of actual money that it could have spent Immediately This statement is true because The funds recorded in Green Caterpillar's cash and equivalents account represents funds that are the cash or can be converted into cash almost immediately Green Caterpillar's Year 2 cash and equivalents balance is $8,707 million The funds recorded in Green Caterpillar's accounts receivable account represents tunds that are either cash or can be converted into cash almost immediately. Statement #3: One way to interpret the change in Green Caterpillar's accounts receivable balance from Year 1 to Year 2 is that more customers purchased new items on credit rather than paying off existing credit accounts. This statement is correct because: The $253 million increase in accounts receivable means either that year 1's existing credit customers are not paying off their owed balances and new or existing customers are making additional purchases on credit, or that Year 1 credit customers have repaid their owed balances and Year 2 credit sales have exceeded Year 1 credit sales The decrease from $1.266 million to $1,013 million implies a net decrease in accounts receivable and that more customers are paying off their receivables balances than are buying on credit. The change from $2,970 million to $3,712 milion reflects a net accumulation of new credit sales 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 If the firm increases the dividends paid on its common stock
