West Company had 375000 of current assets and 150000 of curr

West Company had $375,000 of current assets and $150,000 of current liabilities before borrowing $75.000 from the bank with a 3-month note payable. What effect did the borrowing transaction have on the amount of West Company\'s working capital? e No effect $75,000 increase $150,000 increase $75,000 decrease

Solution

“ THE ANSWER IS $75,000, DECREASE “

Working Capital = Total Current Assets – Total Current Liabilities

Working Capital Before Borrowing

= $375,000 – 150,000

= $225,000

Working Capital After Borrowing of $75,000

= $375,000 – [$150,000 + 75,000]

= $375,000 – 225,000

= $150,000

Effect on Borrowing Transaction on the amount of west company’s working capital

West Company’s Working Capital is decreased from $225,000 – 150,000 which results in a DECREASE OF $75,000 in West Company’s Working Capital