A firm paid out a dividend of $700,000 and repaid $1,000,000 notes payable (due for 90 days.) The net effect of these transactions on the firm's net working capital is:

Question

Quizplus · Accepted Answer

Paying out dividends does not affect net working capital since it involves equity and cash, both of which are not part of working capital calculation. Repaying notes payable reduces both cash and current liabilities, leaving net working capital unchanged. Therefore, the only effect comes from the dividend payout, decreasing net working capital by $700,000.

A Firm Paid Out a Dividend of $700,000 and Repaid