The accounts of Weston Inc.indicate the following changes in long-term assets and capital for the past year: (1)Fifty thousand (50,000)shares of common stock were sold at $25 per share.
(2)Two million dollars ($2 million)in bonds matured and were retired.
(3)Dividends of $1 million were paid.
(4)Net fixed assets declined by $200,000.
(5)Net income was calculated to be $2 million.
(6)Depreciation expense was $1.5 million.
What was the increase or decrease in net working capital?
(Hint: Changes in net fixed assets incorporate changes in both gross fixed assets and accumulated depreciation. )
A) +$450,000
B) −$250,000
C) −$1,950,000
D) +$1,950,000
E) +$3,300,000

Question

Quizplus · Accepted Answer

The increase in net working capital is calculated by considering the cash inflows and outflows. Cash inflows include $1.25 million from stock sales (50,000 shares x $25) and $2 million net income. Cash outflows include $2 million for bond retirement and $1 million in dividends. The net change is $1.25M + $2M - $2M - $1M = $250,000. The decline in net fixed assets by $200,000 (after accounting for $1.5M depreciation) indicates a $1.3M sale of assets, adding to cash inflow. Thus, the net increase in working capital is $250,000 + $1.3M = $1.55M, but considering the options, the closest positive change is $450,000.

The Accounts of Weston Inc