A firm starts its year with a 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 ending net working capital might be positive, negative, or equal to zero. This is because the net working capital is calculated by subtracting current liabilities from current assets. If the short-term debt acquired is more than the short-term assets acquired, the current liabilities will exceed current assets, leading to a negative net working capital. However, if the firm already started the year with a positive net working capital, it is possible that even after acquiring more short-term debt than assets, the ending net working capital will remain positive.

A Firm Starts Its Year with a Positive Net Working