2. Balance sheet Aa Aa E 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. Fuzzy Button Clothing Company 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. Year 2 Year 1 Fuzzy Button Clothing Company Balance Sheet for Year Ending December 31 (Millions of Dollars) Year 2 Year 1 Liabilities and equity Current liabilities: $3,690 Accounts payable 1,688 1,350 Accruals 4,950 3,960 Notes payable $11,250 $9,000 Total current liabilities Assets Current assets: Cash and equivalents Accounts receivable Inventories Total current assets $0 $0 234 1,328 1,250 $1,250 3,750 $5,000 Net fixed assets: Net plant and equipment D $11,000 4,688 $6,250 Long-term debt Total debt Common equity: Common stock Retained earnings Total common equity Total liabilities and equity 12,188 9,750 5,250 $15,000 $20,000 $18,750 $25,000 Total assets $25,000 $20,000 Given the information in the preceding balance sheet-and assuming that Fuzzy Button Clothing Company 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: Fuzzy Button's net collection of inventory items increased by more than the firm sold between Years 1 and 2. This statement is , because: Total inventories of raw materials, work-in-process, and final goods increased from $3,960 million to $4,950 million between Year 1 and Year 2 Total inventories of raw materials, work-in-process, and final goods decreased by $990 million between Year 1 and Year 2 The accounts receivable balance increased by $338 million between Years 1 and 2 Statement #2: Over the past two years, Fuzzy Button Clothing Company has relied more on the use of short-term debt than on long-term debt financing. This statement is , because: Fuzzy Button's total current liabilities decreased by $312 million, while its long-term debt account decreased by $938 million Fuzzy Button's total current liabilities increased by $312 million, while its use of long-term debt increased by $938 million Fuzzy Button's total notes payable increased by $78 million, while its common stock account increased by $2,438 million Statement #3: If Fuzzy Button ever goes bankrupt, its common shareholders will be paid off first, then its debtholders and preferred stockholders. This statement is , because: Debtholders and preferred shareholders are considered residual investors Debtholders are treated as residual investors Common shareholders are treated as residual investors Based on your understanding of the different items reported on the balance sheet and the information they provide, which statement regarding Fuzzy Button Clothing Company'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 in order of their liquidity. The company's debts should be listed from those carrying the largest balance to those with the smallest balance