A Company Has Current Assets of $200,000 and Current Liabilities

question 75

Multiple Choice

A company has current assets of $200,000 and current liabilities of $150,000.If they used cash to pay off some accounts payable what would the effect be on their working capital?

• A)Their working capital would increase.
• B)Their working capital would decrease.
• C)Their working capital would stay the same.
• D)The effect on the working capital would depend on the amount paid.

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Definitions:

Assets

Resources owned by a company, regarded as having value and available to meet debts, commitments, or legacies.

Invest

The action of allocating resources, usually financial, with the expectation of achieving a profit or material result.

ESOPs

Employee Stock Ownership Plans; these provide company stocks to employees as part of a retirement plan or incentive program.

Tax Advantages

Financial benefits derived from certain investments or transactions that are treated favorably by tax laws, reducing tax liability.