MINDTAP apter Review 15-Working Capital Management e on Dec 7 at 11:59 PM PST Ba
ID: 2792826 • Letter: M
Question
MINDTAP apter Review 15-Working Capital Management e on Dec 7 at 11:59 PM PST Back to Assignment Attempts: Keep the Highest: S AaAa . 1. Calculating working capital Unitry Inc.'s CFO has decided to take a closer look at the firm's short-term assets and liabilities. Unitry Inc.'s balance sheet follows. Balance Sheet Cash Accounts receivable Inventory Total current assets $200,000 Accounts payable $110,000 Accruals $170,000 Notes payable $480,000 Total current liabilities Long-term debt Total common equity Total liabilities and equity $170,000 $55,000 $135,000 $360,000 $350,000 $190,000 $900,000 Net plant and equipment Total assets $420,000 $900,000 The value of Unitry Inc.'s working capital is ,while its net working capital is The value of unitry Inc.'s net operating working capital is Unitry Inc.'s current ratio is If Unitry Inc. decides to purchase inventory on account, its current ratio wilExplanation / Answer
1.
Working capital is the total amount of current assets. This is $480,000 as per the balance sheet.
Answer: Working capital is $480,000.
2.
Net working capital = Total current assets – Total current liabilities
= $480,000 - $360,000
= $120,000 (Answer)
3.
Net operating working capital = Total current assets – Current liabilities having no interest
= $480,000 – (Accounts payable + Accruals)
= $480,000 – ($170,000 + $55,000)
= $480,000 - $225,000
= $255,000 (Answer)
4.
Current ratio = Total current assets / Total current liabilities
= $480,000 / $360,000
= 1.33 (Answer)
5.
The ratio will decrease.
Purchasing inventory increases current assets; since it is done on account, it increases accounts payable too. Therefore, both assets and liabilities increase by the same amount. It decreases the ratio, because the liability is in the denominator.
Example: Suppose the on account inventory purchase is $50,000. Total current assets = $480,000 + $50,000 = $530,000. Total current liabilities = $360,000 + $50,000 = $410,000. Therefore, current ratio = $530,000 / $410,000 = 1.29; it is smaller than 1.33, therefore decreased.
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