Question

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 $6,457 Accounts payable $0 $0
Accounts receivable 2,953 2,363 Accruals 410 0
Inventories 8,662 6,930 Notes payable 2,324 2,187
Total current assets $19,687 $15,750 Total current liabilities $2,187
Net fixed assets: Long-term debt 8,203 6,563
Net plant and equipment $19,250 Total debt $10,937 $8,750
Common equity:
Common stock 21,328 17,063
Retained earnings 9,187
Total common equity $32,813 $26,250
Total assets $43,750 $35,000 Total 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.

Answer 1

Answer:

the question is incomplete, so I looked for a similar one:

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 asset balance actually increased from $15,750 million to $19,687 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 TRUE, because:

• 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 INCORRECT, because:

• 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, if everything else remains the same, then the cash and equivalents item on the current balance sheet is likely to INCREASE if the firm issues $3 million of new common stock.

If common stocks are issued, then the journal entry should be:

Dr Cash 3,000,000

    Cr Common stock 3,000,000