2. Balance sheet 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. Blue Hamster Manufacturing 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. Blue Hamster Manufacturing 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: Accounts payable Cash and equivalents $6,457 $0 $0 Accounts receivable 2,363 Accruals 410 0 2,953 8,662 Inventories 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 $35,000 Total liabilities and equity $43,750 $35,000 $43,750

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Given the information in the preceding balance sheet—and assuming that Blue Hamster Manufacturing 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:Blue Hamster’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 which one?

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

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

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

Statement #2: Over the past two years, Blue Hamster Manufacturing Inc. has relied more on the use of short-term debt than on long-term debt financing.

This statement is --TRUE OR FALSE??? , because which one:

Blue Hamster’s total current liabilities decreased by $547 million, while its long-term debt account decreased by $1,640 million

Blue Hamster’s total current liabilities increased by $547 million, while its use of long-term debt increased by $1,640 million

Blue Hamster’s total notes payable increased by $137 million, while its common stock account increased by $4,265 million

Statement #3: The book value of one of Blue Hamster’s fixed assets is calculated as the original cost of the asset minus its annual depreciation expense.

This statement is---TRUE OR FALSE???--- , because which one?:

An asset’s net book value is calculated by subtracting its annual depreciation expense from its total historic and installation costs

An asset’s net book value is calculated by subtracting its accumulated depreciation expense from its total historic and installation costs

An asset’s net book value is calculated by adding its annual depreciation expense to its total historic and installation costs

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, DECREASE, OR REMAIN THE SAME?) if the firm increases the dividends paid on its common stock.

### 2. Balance Sheet

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.

Blue Hamster Manufacturing 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.

#### Blue Hamster Manufacturing Inc. Balance Sheet for Year Ending December 31 (Millions of Dollars)
| **Year 2** | **Year 1** |
|--------------|--------------|
| **Assets** | |
| **Current assets**: | |
| Cash and equivalents | $6,457 |
| Accounts receivable | $2,953 | $2,363 |
| Inventories | $8,662 | $6,930 |
| **Total current assets** | $19,687 | $15,750 |
| **Net fixed assets**: | |
| Net plant and equipment | $19,250 |
| **Total assets** | $43,750 | $35,000 |
| | |
| **Liabilities and equity** | |
| **Current liabilities**: | |
| Accounts payable | $0 | $0 |
| Accruals | $410 | $0 |
| Notes payable | $2,324 | $2,187 |
| **Total current liabilities** | | $2,187 |
| Long-term debt | $8,203 | $6,563|
| **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 liabilities and equity** | $43,750 | $35,000 |

### Explanation of the Balance Sheet Items:

**Current Assets:**
- Cash and equivalents are equivalent to liquid assets like cash and bank deposits. For Year 1, it is $6,457 million.
- Accounts receivable indicate the amount of money the company claims from customers or clients who have purchased on credit. For Year 2,

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