Question

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 1 Year 2 Year 1
Assets Liabilities and equity
Current assets: Current liabilities:
Cash and equivalents $4,612 Accounts payable $0 $0
Accounts receivable 2,109 1,688 Accruals 293 0
Inventories 6,187 4,950 Notes payable 1,660 1,562
Total current assets $14,062 $11,250 Total current liabilities $1,562
Net fixed assets: Long-term debt 5,859 4,688
Net plant and equipment $13,750 Total debt $7,812 $6,250
Common equity:
Common stock 15,235 12,188
Retained earnings 6,562
Total common equity $23,438 $18,750
Total assets $31,250 $25,000
Total liabilities and equity $31,250 $25,000
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 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 , because:
Cold Goose’s total current liabilities balance decreased by $2,812 million between Year 1 and Year 2
Cold Goose’s total current asset balance actually increased from $11,250 million to $14,062 million between Year 1 and Year 2
Cold Goose’s total current liabilities balance increased from $1,688 million to $2,109 million between Year 1 and Year 2
Statement #2: In Year 2, Cold Goose Metal Works Inc. was profitable.
This statement is , because:
The cash and equivalents account increased between Years 1 and 2
Cold Goose’s retained earnings account increased between the end of Years 1 and 2
Cold Goose’s total assets increased between Years 1 and 2

Answer 1

Answer:

A. Total assets $31,250 $25,000

Total abilities and equity $31,250 $25,000

B. Statement 1 is FALSE

Statement 2 is TRUE

Explanation:

A . Using the information given to complete the balance sheet

Cold Goose Metal Works Inc Balance Sheet For Year Ending December 31 (Millions of Dollars)

Year 1 Year 2

ASSETS

Current assets:

Cash and equivalents

$5,766 $4,612

(14,062 – 6,187-2,109 = $5766)

Accounts receivable

2,109 1,688

Inventories

6,187 4,950

Total current assets

$14,062 $11,250

Net fixed assets:

Net plant and equipment

$17,188 $13750

( 31,250-14,062 = $17,188)

Total assets $31,250 $25,000

LIABILITIES AND EQUITY

Current liabilities:

Accounts payable

$0 $0

Accruals

293 0

Notes payable

1,660 1,562

Total current abilities

$1,953 $1,562

(0+293+1,660 = $1,953)

Long-term debt

5,859 4,688

Total debt

$7,812 $6,250

Common equity

Common stock

15,235 12,188

Retained earnings

$8,203 6,562

(23,438-15,235 = $8,203)

Total abilities and equity $31,250 $25,000

Net Plant and Equipment= 31250-14062

Net Plant and Equipment = $17188

Cash and Equivalents = 14062 – 6187-2109

Cash and Equivalents= $5766

Total Current liabilities = 0+293+1660

Total Current liabilities = $1953

Retained earnings = 23438-15235

Retained earnings= $8203

B. To identify the selection that best interprets the information conveyed by the balance sheet.

Based on the information given STATEMENT 1 is FALSE reason been that Cold Goose’s total current asset balance increased from the amount of $11,250 million to the amount of $14,062 million between Year 1 and Year 2.

Based on the information given STATEMENT 2 is TRUE reason been that their was increased in retained earnings account between the end of Years 1 and year 2.