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		$1,845	Accounts payable	$0	$0
Accounts receivable	844	675	Accruals	117	0
Inventories	2,475	1,980	Notes payable	664	625
Total current assets	$5,625	$4,500	Total current liabilities		$625
Net fixed assets:			Long-term debt	2,344	1,875
Net plant and equipment		5,500	Total liabilities	$3,125	$2,500
			Common equity:
			Common stock	6,094	4,875
			Retained earnings		2,625
			Total common equity	$9,375	$7,500
Total assets	$12,500	$10,000	Total liabilities and equity	$12,500	$10,000

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 net collection of inventory items increased by more than the firm sold between Years 1 and 2.

This statement is , because:

Total inventories of raw materials, work-in-process, and final goods decreased by $495 million between Year 1 and Year 2.

Total inventories of raw materials, work-in-process, and final goods increased from $1,980 million to $2,475 million between Year 1 and Year 2.

The accruals balance decreased by $117 million between Years 1 and 2.

Statement #2: On December 31 of Year 2, Cold Goose Metal Works Inc. had $2,306 million of actual money that it could have spent immediately.

This statement is , because:

Cold Gooses Year 2 cash and equivalents balance is $5,805.

The funds recorded in Cold Gooses cash and equivalents account represents funds that are either cash or can be converted into cash almost immediately.

The funds recorded in Cold Gooses accounts receivable account represents funds that are either cash or can be converted into cash almost immediately.

Statement #3: If Cold Goose ever goes bankrupt, its common shareholders will be paid off first, then its debtholders and preferred stockholders.

This statement is , because:

Common shareholders are treated as residual investors.

Debtholders and preferred shareholders are considered residual investors.

Debtholders are treated as residual investors.

Based on your understanding of the different items reported on 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 debts should be listed in order of their liquidity.

The companys debts are listed in the order in which they are to be repaid.

The companys debts should be listed from those carrying the largest balance to those with the smallest balance.