The following accounts represent the financial status of Fandango Company as of October 1.The business has cash of $100,000. It must pay its suppliers $250,000 within 60 days. It has a mortgage outstanding of $3.1 million, of which $100,000 is owed within the next 12 months. Inventory totals $700,000 and the net book value of its land, building and equipment is $3.6 million. Income tax payable equals $50,000. It has $1 million in shareholder's equity. The value of the Company's working capital is

Question

Quizplus · Accepted Answer

Working capital is calculated as current assets minus current liabilities.

Current assets: 
- Cash: $100,000 
- Inventory: $700,000

Current liabilities: 
- Suppliers: $250,000 
- Mortgage due within 12 months: $100,000 
- Income tax payable: $50,000

Total current assets = $800,000 
Total current liabilities = $400,000

Therefore, the working capital of Fandango Company is:

Working capital = Current assets - Current liabilities 
Working capital = $800,000 - $400,000 
Working capital = $400,000

The Following Accounts Represent the Financial Status of Fandango Company