Year 2 Year 1 $0 469 Green Caterpillar Garden Supplies Inc. Balance Sheet for Year Ending December 31 (Millions of Dollars) Year 2 Year 1 Assets Liabilities and equity Current assets: Current liabilities: Cash and equivalents $9,225 $7,380 Accounts payable Accounts receivable 3,375 2,700 Accruals Inventories 9,900 7,920 Notes payable Total current assets $22,500 $18,000 Total current liabilities Net fixed assets: Long-term debt Net plant and equipment $27,500 $22,000 Total debt Common equity: Common stock Retained earnings Total common equity Total assets $50,000 $40,000 Total liabilities and equity $0 0 2,500 $2,500 2,656 $3,125 9,375 $12,500 7,500 $10,000 24,375 13,125 $37,500 $50,000 19,500 10,500 $30,000 $40,000 Statement #1: Green Caterpillar's pool of relatively liquid assets, which are available to support the company's current and future sales, decreased from Year 1 to Year 2. This statement is false , because: Green Caterpillar's total current liabilities balance decreased by $4,500 million between Year 1 and Year 2 Green Caterpillar's total current asset balance actually increased from $18,000 million to $22,500 million between Year 1 and Year 2 Green Caterpillar's total current liabilities balance increased from $2,700 million to $3,375 million between Year 1 and Year 2 Statement #2: In Year 2, Green Caterpillar Garden Supplies Inc. was profitable. This statement is true because: Green Caterpillar's retained earnings account increased between the end of Years 1 and 2 Green Caterpillar's total assets increased between Years 1 and 2 The cash and equivalents account increased between Years 1 and 2 Statement #3: If Green Caterpillar ever goes bankrupt, its common stockholders will be paid off first, then its debtholders and preferred stockholders. This statement is incorrect , 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, 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