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.

Green Caterpillar Garden Supplies 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.

Green Caterpillar Garden Supplies 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		$7,380	Accounts payable	$0	$0
Accounts receivable	3,375	2,700	Accruals	$469	$0
Inventories	9,900	7,920	Notes payable	$2,656	$2,500
Total current assets	$22,500	$18,000	Total current liabilities		$2,500
Net fixed assets:			Long-term debt	9,375	7,500
Net plant and equipment		22,000	Total liabilities	$12,500	$10,000
			Common equity:
			Common stock	$24,375	$19,500
			Retained earnings		$10,500
			Total common equity	$37,500	$30,000
Total assets	$50,000	$40,000	Total liabilities and equity	$50,000	$40,000

Given the information in the preceding balance sheetand assuming that Green Caterpillar Garden Supplies 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: Green Caterpillars pool of relatively liquid assets, which are available to support the companys current and future sales, decreased from Year 1 to Year 2.

This statement is , because:

Green Caterpillars total current liabilities balance increased from $2,700 million to $3,375 million between Year 1 and Year 2.

Green Caterpillars total current asset balance increased from $18,000 million to $22,500 million between Year 1 and Year 2.

Green Caterpillars total current asset balance decreased from $22,500 million to $18,000 million between Year 1 and Year 2.

Statement #2: Over the past two years, Green Caterpillar Garden Supplies Inc. has relied more on the use of short-term debt than on long-term debt financing.

This statement is , because:

Green Caterpillars total current liabilities increased by $625 million, while its use of long-term debt increased by $1,875 million.

Green Caterpillars total notes payable increased by $156 million, while its common stock account increased by $4,875 million.

Green Caterpillars total current liabilities decreased by $625 million, while its long-term debt account decreased by $1,875 million.

Statement #3: One way to interpret the change in Green Caterpillars 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 , because:

The $675 increase in accounts receivable means either that Year 1s existing credit customers are not paying off their owed balances and new or existing customers are making additional purchases on credit, or that Year 1s credit customers have repaid their owed balances and Year 2 credit sales have exceeded Year 1s credit sales.

The change from $7,920 million to $9,900 million reflects a net accumulation of new credit sales.

The decrease from $3,375 million to $2,700 million implies a net decrease in accounts receivable and that more customers are paying off their receivables balances than are buying on credit.

Based on your understanding of the different items reported in the balance sheet and the information they provide, which statement regarding Green Caterpillar Garden Supplies Inc.s balance sheet is consistent with U.S. Generally Accepted Accounting Principles (GAAP)?

The companys assets should be listed in the order in which they are to be converted into cash.

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