Question

Presented below are the ending balances of accounts for the Kansas Instruments Corporation at December 31, 2021.

Account Title		Debits			Credits
Cash	$	34,000
Accounts receivable		158,000
Raw materials		38,000
Notes receivable		114,000
Interest receivable		17,000
Interest payable				$	19,000
Investment in debt securities		46,000
Land		64,000
Buildings		1,580,000
Accumulated depreciation—buildings					634,000
Work in process		56,000
Finished goods		103,000
Equipment		328,000
Accumulated depreciation—equipment					144,000
Patent (net)		134,000
Prepaid rent (for the next two years)		74,000
Deferred revenue					50,000
Accounts payable					194,000
Notes payable					540,000
Restricted cash (for payment of notes payable)		94,000
Allowance for uncollectible accounts					27,000
Sales revenue					1,080,000
Cost of goods sold		464,000
Rent expense		42,000

Additional Information:

1. The notes receivable, along with any accrued interest, are due on November 22, 2022.
2. The notes payable are due in 2025. Interest is payable annually.
3. The investment in debt securities consist of treasury bills, all of which mature next year.
4. Deferred revenue will be recognized as revenue equally over the next two years.

Required:
Determine the company’s working capital (current assets minus current liabilities) at December 31, 2021. (Amounts to be deducted should be indicated by a minus sign.)

Answer 1

As per the Generally accepted accounting Standrads Working capital refers to the Differance between the Current assets of the Company by reducation of Current Liabilites of the Company as at date of Financial Statements i.e 31.12.2021.

Current Assets:-

Cash = 34000

Accounts Receivables = 158000

Raw Material = 38000

Notes Receivables = Nil (Notes)

Interest Receivables = Nil (Notes)

Investment in Debt Securities = Nil (Note)

Work in Process = 56000

Finished Goods = 103000

Prepaid Rent = 37000 (Note)

Restricted Cash = Nil (Note)

Current Liabilities:-

Interest Payable = 19000

Deferred Revenue = 50000

Accounts Payables = 194000

Notes Payable = Nil (Note)

NET WORKING CAPITAL = Current Assets minus Current Liabilities = 426000-263000 = 163000

NOTES:

*Notes Receivables and Interest Receivables will not a part of Current Assets because current Assets means Expected to be Converted in to Cash equivalent with in period of One Year and Further it can be Defined as which can be recovered in a normal operating cycle.

* Investment in Debt Securities will be form a part of Long term Investments Only.

*Prepaid Rent can be considered as Current Assets , however in the Present exercise prepaid belongs to two year so first Calendar year can be consider as a current assets pertains to the amount.

*Restricted Cash is belongs to Notes Payables only, So Notes Payable having the Life term of Five Years so it will not form a part of Current Liabilities so that restricted cash will also not form a part Current Liabilities.

*Land, Building, Equipment will form a part of Fixed Assets

*Sales, COGS and Rental Expenses items relating to the Profit and Loss Accounts, the same will ignored in computation of Working Capital of the Company