Question

Carter Co. had the following items on its balance sheet at the end of the current year:

Cash and cash equivalents ---$ 200,000
Short-term investments ---------100,000
Accounts receivable -----------400,000
Inventories ----------------------600,000
Patent-10 years ------------------300,000
Equipment ---------------------1,000,000
Accumulated depreciation -----200,000

The amount of current liabilities at the end of the current year was $640,000. What is Carter's working capital at the end of the current year?

A.$60,000
B.$560,000
C.$660,000
D.$960,000

Answer 1

Carter Co.'s working capital is calculated by subtracting the current liabilities from the total current assets. After totaling the current assets and subtracting the current liabilities of $640,000, the working capital is found to be $660,000.

Step-by-step explanation:

To calculate Carter Co.'s working capital, we need to subtract the current liabilities from the current assets. Current assets include cash and cash equivalents, short-term investments, accounts receivable, and inventories. On the other hand, non-current assets like patents and equipment are excluded from the working capital calculation. Let's do the math:

• Cash and Cash Equivalents = $200,000
• Short-term Investments = $100,000
• Accounts Receivable = $400,000
• Inventories = $600,000

Therefore, total current assets = $200,000 + $100,000 + $400,000 + $600,000 = $1,300,000.

Now, we subtract the current liabilities:

Total Current Assets - Current Liabilities = $1,300,000 - $640,000 = $660,000.

Hence, Carter's working capital at the end of the current year is $660,000, which corresponds to choice C.