Use the following information to answer questions
Bracewell Corporation’s current ratio is 2.5:1. The company’s current liabilities total $200,000.
-If Bracewell buys equipment for $100,000 cash, working capital immediately after this transaction is
A) $100,000.
B) $200,000.
C) $300,000.
D) $400,000.
E) $500,000.

Question

Use the following information to answer questions 
Bracewell Corporation’s current ratio is 2.5:1. The company’s current liabilities total $200,000. 
-If Bracewell buys equipment for $100,000 cash, working capital immediately after this transaction is
A) $100,000.
B) $200,000.
C) $300,000.
D) $400,000.
E) $500,000.

Quizplus · Accepted Answer

Working capital is calculated as current assets minus current liabilities. Initially, Bracewell's current assets can be calculated as 2.5 times its current liabilities, which are $200,000. So, initial current assets = 2.5 * $200,000 = $500,000. After purchasing equipment for $100,000 in cash, the current assets would decrease to $400,000 ($500,000 - $100,000). Therefore, the working capital after the transaction is $400,000 (current assets) - $200,000 (current liabilities) = $200,000.

Use the Following Information to Answer Questions