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.

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		$3,690	Accounts payable	$0	$0
Accounts receivable	1,688	1,350	Accruals	$234	$0
Inventories	4,950	3,960	Notes payable	$1,328	$1,250
Total current assets	$11,250	$9,000	Total current liabilities		$1,250
Net fixed assets:			Long-term debt	4,688	3,750
Net plant and equipment		11,000	Total liabilities	$6,250	$5,000
			Common equity:
			Common stock	$12,188	$9,750
			Retained earnings		$5,250
			Total common equity	$18,750	$15,000
Total assets	$25,000	$20,000	Total liabilities and equity	$25,000	$20,000

Given the information in the preceding balance sheetand assuming that Blue Hamster Manufacturing 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: Blue Hamsters accumulated owed financial obligations decreased from Year 1 to Year 2.

This statement is , because:

The accounts payable account remained $0 for both Years 1 and 2.

Accruals actually increased from $0 in Year 1 to $234 million at the end of Year 2.

Long-term debt decreased from $1,328 million at the end of Year 1 to $1,250 million by the end of Year 2.

Statement #2: On December 31 of Year 2, Blue Hamster Manufacturing Inc. had $4,612 million of actual money that it could have spent immediately.

This statement is , because:

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

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

Blue Hamsters Year 2 cash and equivalents balance is $11,610.

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

This statement is , because:

Debtholders and preferred shareholders are considered residual investors.

Debtholders are treated as residual investors.

Common shareholders 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 Blue Hamster Manufacturing 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.