For project Z, year 5 inventories increase by $6,000; accounts receivable by $4,000; and accounts payable by $3,000. Calculate the increase or decrease in working capital for year 5.
A)Increases by $5,000
B)Decreases by $1,000
C)Increases by $7,000
D)Decreases by $7,000

Question

Quizplus · Accepted Answer

To calculate the increase or decrease in working capital, we subtract the increase in current liabilities from the increase in current assets.

Increase in current assets = $6,000 (inventories) + $4,000 (accounts receivable) = $10,000 
Increase in current liabilities = $3,000 (accounts payable)

Therefore, Increase in working capital = $10,000 - $3,000 = $7,000. Hence, the correct answer is C, which indicates that working capital increases by $7,000 in year 5.

For Project Z, Year 5 Inventories Increase by $6,000; Accounts