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Statement #1: Blue Hamster’s accumulated owed financial obligations decreased from Year 1 to Year 2. This statement is false, because:
1. Notes payable actually increased from $2,324 million to $2,187 million between Years 1 and 2.
2. Accruals actually increased from $0 in Year 1 to $410 million at the end of Year 2.
3. Long-term debt decreased from $2,324 million at the end of Year 1 to $2,187 million by the end of Year 2.
Statement #2: On December 31 of Year 2, Blue Hamster Manufacturing Inc. had $8,072 million of actual money that it could have spent immediately. This statement is false, because:
1. Blue Hamster’s Year 2 cash and equivalents balance is $20,317 million.
2. The funds recorded in Blue Hamster’s cash and equivalents account represent funds that are either cash or can be converted into cash almost immediately.
3. The funds recorded in Blue Hamster’s accounts receivable account represent funds that are either cash or can be converted into cash almost immediately.
Statement #3: The book value per share of Blue Hamster’s stock in Year 2 was $656.26. This statement is incorrect, because:
1. The per-share book value is calculated by dividing the company’s total debt by the number of outstanding shares of common stock.
2. The per-share book value is calculated by dividing the company’s total assets by the number of outstanding shares of common stock.
3. The per-share book value is calculated by dividing the company’s total common equity by the number of outstanding shares of common stock.
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 decrease/increase/remain the same if the firm buys a new plant and equipment at a cost of $1 million with liquid capital.