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 company's 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 2 Year 1 Year 1 Liabilities and equity Assets Current assets: Current liabilities: Cash and equivalents Accounts payable $1,845 $0 $0 Accruals Accounts receivable 844 675 117 0 Notes payable 625 Inventories 2,475 1,980 664 $5,625 Total current assets $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 Total liabilities and equity $12,500 $10,000 $12,500 $10,000 Given the information in the preceding balance sheet-and assuming that Cold Goose Metal Works 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: Cold Goose's net collection of inventory items increased by more than the firm sold between Years 1 and 2 This statement is because: Statement #1: Cold Goose's 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 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. Total inventories of raw materials, work-in-process, and final goods decreased by $495 million between Year 1 and Year 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. because This statement is Cold Goose's Year 2 cash and equivalents balance is $5,805 The funds recorded in Cold Goose's cash and equivalents account represents funds that are either cash or can be converted into cash almost immediately The funds recorded in Cold Goose's 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 company's debts should be listed in order of their liquidity. The company's debts are listed in the order in which they are to be repaid. The company's debts should be listed from those carrying the largest balance to those with the smallest balance
