A corporation is considering expanding operations to meet growing demand. With the capitalexpansion, the current accounts are expected to change. Management expects cash to increase by$20,000, accounts receivable by $40,000, and inventories by $60,000. At the same time accounts payable will increase by $50,000, accruals by $10,000, and long-term debt by $100,000. The change in net working capital is __________.
A) an increase of $120,000
B) a decrease of $120,000
C) an increase of $60,000
D) a decrease of $40,000

Question

Quizplus · Accepted Answer

The change in net working capital is calculated as the change in current assets minus the change in current liabilities. Therefore, the change in net working capital is:
$20,000 (cash) + $40,000 (accounts receivable) + $60,000 (inventories) - $50,000 (accounts payable) - $10,000 (accruals) = $60,000. Thus, the correct answer is an increase of $60,000 (Option C).

A Corporation Is Considering Expanding Operations to Meet Growing Demand