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  T/F    , because:   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   Cold Goose’s total current liabilities balance decreased by $2,812 million between Year 1 and Year 2     Statement #2: In Year 2, Cold Goose Metal Works Inc. was profitable.   This statement is  T/F  , because:   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   The cash and equivalents account increased between Years 1 and 2     Statement #3: If Cold Goose ever goes bankrupt, its common stockholders will be paid off first, then its debtholders and preferred stockholders.   This statement is T/F   , because:   Debtholders are treated as residual investors   Common shareholders 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, 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 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.   The company’s debts should be listed in order of their liquidity.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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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  T/F    , because:
 
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
 
Cold Goose’s total current liabilities balance decreased by $2,812 million between Year 1 and Year 2
 
 
Statement #2: In Year 2, Cold Goose Metal Works Inc. was profitable.
 
This statement is  T/F  , because:
 
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
 
The cash and equivalents account increased between Years 1 and 2
 
 
Statement #3: If Cold Goose ever goes bankrupt, its common stockholders will be paid off first, then its debtholders and preferred stockholders.
 
This statement is T/F   , because:
 
Debtholders are treated as residual investors
 
Common shareholders 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, 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 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.
 
The company’s debts should be listed in order of their liquidity.
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