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 companys 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 sheets for Green Caterpillar Garden Supplies Inc. for the years ending December 31, Year 2 and 1, respectively.

Given the information in the preceding balance sheetand assuming that Green Caterpillar Garden Supplies Inc. has 50 million shares of common stock outstandingread each of the following statements, then identify the selection that best interprets the information conveyed by the balance sheet.

Statement #1: Green Caterpillars pool of relatively liquid assets, which are available to support the companys current and future sales, decreased from Year 1 to Year 2.

This statement is , because:

Green Caterpillars total current liabilities balance increased from $67,500 to $84,375 between Year 1 and Year 2.

Green Caterpillars total current asset balance actually increased from $450,000 to $562,500 between Year 1 and Year 2.

Green Caterpillars total current asset balance decreased from $562,500 to $450,000 between Year 1 and Year 2.

Green Caterpillars total current liabilities balance decreased by $112,500 between Year 1 and Year 2.

Statement #2: On December 31 of Year 2, Green Caterpillar Garden Supplies Inc. had $230,625 of actual money that it could have spent immediately.

This statement is , because:

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

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

Green Caterpillars Year 2 cash and equivalents balance is $580,500.

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 , because:

Debtholders are treated as residual investors

Debtholders and preferred shareholders are considered residual investors

Common shareholders are treated as residual investors

Based on your understanding of the different items reported in the balance sheet and the information they provide, which statement regarding Green Caterpillar Garden Supplies Inc.s balance sheet is consistent with U.S. Generally Accepted Accounting Principles (GAAP)?

The companys assets should be listed in alphabetical order.

The companys assets should be listed in the order in which they are to be converted into cash.

The companys assets should be listed from those carrying the largest balance to those with the smallest balance.

Year 2 Year 1 Year 2 Year 1 Assets $0 $0 $230,625 $84,375 $11,719 $0 Current assets: Cash and equivalents Accounts receivable Inventories Total current assets Net fixed assets: Net plant and equipment $184,500 $67,500 $198,000 $450,000 $247,500 $562,500 $66,406 $78,125 $62,500 $62,500 Liabilities and equity Current liabilities: Accounts payable Accruals Notes payable Total current liabilities Long-term debt Total debt Common equity: Common stock Retained earnings Total common equity Total liabilities and equity $234,375 $187,500 $687,500 $550,000 $312,500 $250,000 $609,375 $487,500 $262,500 $750,000 $937,500 $1,250,000 Total assets $1,250,000 $1,000,000 $1,000,000