Question

Use the following data to determine the total amount of working capital from the Banner Auto Supplies Balance Sheet for December 31, 2020:

Cash $70,000
Accounts payable $130,000
Accounts receivable 100,000
Salaries and wages payable 20,000
Inventory 140,000
Mortgage payable 180,000
Prepaid insurance 80,000
Total liabilities $330,000
Stock investments 180,000
Land 190,000
Buildings $230,000
Common stock $240,000
Accumulated depreciation (60,000)
Retained earnings 500,000
Total stockholders' equity $740,000
Trademarks 140,000
Total assets $1,070,000
Total liabilities and stockholders' equity $1,070,000

a. 260,000
b. 240,000
c. 160,000
d. 420,000

Answer 1

b. 240,000

Step-by-step explanation:

Calculation to determine the total amount of working capital

First step is to calculate the Current assets

Using this formula

Current assets = Cash + Accounts receivable + Inventory + Prepaid insurance

Let plug in the formula

Current assets= $70,000 + 100,000 + 140,000 + 80,000

Current assets= $390000

Second step is to calculate the Current liabilities using this formula

Current liabilities = Accounts payable + Salaries and wages payable

Let plug in the formula

Current liabilities= $130,000 + 20,000

Current liabilities= $75,000

Now let calculate the working capital using this formula

Working capital = Current assets - Current liabilities

Let plug in the formula

Working capital = $390,000 - 150,000

Working capital = $240,000

Therefore the Working capital is $240,000