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Assume that Icon Co. 2014 current assets totaled for $80,000, they paid out $32,000 in the...

Assume that Icon Co. 2014 current assets totaled for $80,000, they paid out $32,000 in the form of account payable and $8,000 as accruals and $10,000 in notes payable and in 2015 they had a NWC of $40,000. Calculate the change in net working capital.

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Expert Solution

Solution:

Given:

Total Current Assets in 2014= $ 80,000

Accounts Payable in 2014= $ 32,000

Accruals in 2014= $ 8,000

Notes Payable in 2014= $ 10,000

Net Working Capital in 2015 = $ 40,000

To Calculate:

The Change in Net Working Capital

Main Formula:

Change in Net Working Capital = Net Working Capital for Current Year – Net Working Capital for Previous Year

Process: Calculations:

Step: 1 Calculation of Net Working Capital for Previous Year 2014

Formula:

Net Working Capital = Current Assets – Current Liabilities

Here:

Current Assets in 2014 = $ 80,000

Current Liabilities in 2014 = Accounts Payable in 2014 + Accruals in 2014 + Notes Payable in 2014

So, Current Liabilities in 2014 = $ 32,000 + $ 8,000 + $ 10,000 = $ 50,000

Current Liabilities in 2014 = $ 50,000

Net Working Capital in 2014 = Current Assets in 2014 - Current Liabilities in 2014

Net Working Capital in 2014 = $ 80,000 - $ 50,000 = $ 30,000

Net Working Capital in 2014 = $ 30,000

Step: 2 Calculation of the Change in Net Working Capital:

Change in Net Working Capital = Net Working Capital for Current Year – Net Working Capital for Previous Year

Change in Net Working Capital = Net Working Capital in 2015 - Net Working Capital in 2014

Here:

Net Working Capital in 2015 = $ 40,000 & Net Working Capital in 2014 = $ 30,000

On putting these value in the formula, we get,

Change in Net Working Capital = $ 40,000 - $ 30,000 = $ 10,000

Change in Net Working Capital = $ 10,000

Ans: The Change in Net Working Capital = $ 10,000

jeff jeffy answered 2 years ago
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