(16 Intro). Other things held constant, which of the following will cause an increase in net working capital?
A) Cash is used to buy marketable securities.
B) A cash dividend is declared and paid.
C) Merchandise is sold at a profit, but the sale is on credit.
D) Long-term bonds are retired with the proceeds of a preferred stock issue.
E) Missing inventory is written off against retained earnings.

Question

Quizplus · Accepted Answer

When merchandise is sold at a profit, but the sale is on credit, it leads to an increase in accounts receivable which in turn increases the net working capital. The other options do not lead to an increase in net working capital. A) Using cash to buy marketable securities reduces the cash balance and does not impact the net working capital. B) Declaring and paying a cash dividend reduces the cash balance and does not impact net working capital. D) Retiring long-term bonds with the proceeds of a preferred stock issue leads to a reduction in long-term debt but does not impact net working capital. E) Writing off missing inventory against retained earnings leads to a reduction in retained earnings and does not impact net working capital.