A corporation is considering expanding operations to meet growing demand. With the capital expansion the current accounts are expected to change. Management expects cash to increase by$10,000, accounts receivable by $20,000, and inventories by $30,000. At the same time accounts payable will increase by $40,000, accruals by $30,000, and long-term debt by $80,000. The change in net working capital is __________.
A) an increase of $80,000
B) a decrease of $10,000
C) a decrease of $90,000
D) an increase of $10,000

Question

Quizplus · Accepted Answer

Net working capital is calculated as current assets minus current liabilities. The increase in current assets is $60,000 ($10,000 + $20,000 + $30,000) and the increase in current liabilities is $70,000 ($40,000 + $30,000). Therefore, the change in net working capital is a decrease of $10,000 ($60,000 - $70,000).

A Corporation Is Considering Expanding Operations to Meet Growing Demand