A firm starts its year with positive net working capital.During the year,the firm acquires more short-term debt than it does short-term assets.This means that
A)the ending net working capital might be positive,negative,or equal to zero.
B)both accounts receivable and inventory decreased during the year.
C)the beginning current assets were less than the beginning current liabilities.
D)accounts payable increased and inventory decreased during the year.
E)the ending net working capital will be negative.

Question

Quizplus · Accepted Answer

Acquiring more short-term debt than short-term assets means that the firm's net working capital position has deteriorated. However, it is possible that the starting positive net working capital was large enough to cover the increase in short-term debt, resulting in a positive ending net working capital. Thus, the ending net working capital might be positive, negative, or equal to zero. Option B, C, D, and E do not accurately capture the situation described.

A Firm Starts Its Year with Positive Net Working Capital