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.

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: The Impact on Decision Makers

10th Edition

ISBN:9781305654174

Author:Gary A. Porter, Curtis L. Norton

Publisher:Gary A. Porter, Curtis L. Norton

Chapter1: Accounting As A Form Of Communication

Section: Chapter Questions

Problem 1.10E: Net Income (or Loss) and Retained Earnings The following information is available from the records...

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Question

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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