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...



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.




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 2Year 1Year 2Year 1
AssetsLiabilities and equity
Current assets:Current liabilities:
Cash and equivalents$6,457Accounts payable$0$0
Accounts receivable2,9532,363Accruals4100
Inventories8,6626,930Notes payable2,3242,187
Total current assets$19,687$15,750Total current liabilities$2,187
Net fixed assets:Long-term debt8,2036,563
Net plant and equipment$19,250Total debt$10,937$8,750
Common equity:
Common stock21,32817,063
Retained earnings9,187
Total common equity$32,813$26,250
Total assets$43,750$35,000Total liabilities and equity$43,750$35,000







Given the information in the preceding balance sheet—and assuming that Green Caterpillar Garden Supplies 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: 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  (True or False)   , because:




Green Caterpillar’s total current asset balance actually increased from $15,750 million to $19,687 million between Year 1 and Year 2






Green Caterpillar’s total current liabilities balance decreased by $3,937 million between Year 1 and Year 2






Green Caterpillar’s total current liabilities balance increased from $2,363 million to $2,953 million between Year 1 and Year 2












Statement #2: On December 31 of Year 2, Green Caterpillar Garden Supplies Inc. had $8,072 million of actual money that it could have spent immediately.






This statement is     , because:




Green Caterpillar’s Year 2 cash and equivalents balance is $20,317






The funds recorded in Green Caterpillar’s accounts receivable account represents funds that are either cash or can be converted into cash almost immediately






The funds recorded in Green Caterpillar’s cash and equivalents account represents funds that are either cash or can be converted into cash almost immediately












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 (correct or incorrect) , because:




Common shareholders are treated as residual investors






Debtholders are treated as residual investors






Debtholders and preferred shareholders are considered 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   (Remain the same,increase or decrease   if the firm issues $3 million of new common stock.



Jun 02, 2022
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