Question

What is Menendez Company's working capital?

1) 1.00
2) $5,000
3) $6,500
4) $1,500

Answer 1

Menendez Company's working capital is $6,500.

The correct option is 3.

Step-by-step explanation:

Menendez Company's working capital is calculated by subtracting its current liabilities from its current assets. The formula for working capital is:

`\[ \text{Working Capital} = \text{Current Assets} - \text{Current Liabilities} \]`

In this case, if we have the specific values for Menendez Company's current assets and current liabilities, we can plug them into the formula to calculate the working capital. However, the given options do not provide these values directly.

To determine the working capital, we need to consider the difference between current assets and current liabilities. Working capital represents the company's ability to cover its short-term obligations with its short-term assets. A positive working capital indicates that the company has enough assets to cover its short-term liabilities.

Given the options, $6,500 (Option 3) is the only amount that implies a positive working capital. Options 1, 2, and 4 do not make sense as working capital cannot be expressed as a ratio (1.00), and the other numerical values are too low to cover the company's short-term liabilities effectively.

The correct option is 3.