Lennox Furniture Company's 2005 balance sheet showed total current assets of $1,500,000. All of the current assets were required in operations, and its current liabilities consisted of $300,000 of accounts payable, $200,000 of 6% short-term notes payable to the bank, and $100,000 of accrued wages and taxes. What was the net operating working capital that was financed by investors at the end of 2005?

Question

Business

Vaughn Casey

3 April, 04:44

Lennox Furniture Company's 2005 balance sheet showed total current assets of $1,500,000. All of the current assets were required in operations, and its current liabilities consisted of $300,000 of accounts payable, $200,000 of 6% short-term notes payable to the bank, and $100,000 of accrued wages and taxes. What was the net operating working capital that was financed by investors at the end of 2005?

+2

Answers (1)

Know the Answer?

Judith Buck · Answer 1

Working capital is $1,100,000

Explanation:

Working capital is the total current assets less current liabilities, however when considering working capital financed solely by investors we need to exclude from the current liabilities interest bearing obligations as shown below:

Current assets $1,500,000

Accounts payable ($300,000)

Short-term notes 0

Accrued wages and taxes ($100,000)

Working capital $1,100,000

The working capital solely financed by investors is $1,100,000 at end of 2005 as shown in the computation above, the short-term notes assumes a zero value as it is technically excluded since it is interest bearing.