Question

Lennox Furniture Company's 2005 balance sheet showed total current assets of $1,000. All of the current assets were required in operations, and its current liabilities consisted of $300 of accounts payable and $115 of short-term notes payable to the bank. What was the net operating working capital at the end of 2005?

When I did this problem I got $855. but the answer stated it was $700. I can't figure out how to get $700 with the formula he gave us. CA-(CL-NP) am I reading it wrong?

Answer 1

HI,

Operating net working capital is difference between operating current asset and operating current liabilities.

So yeah the formula is correct

Operating net working capital = current asset-(Current liabilities-notes payable) (since notes payable is not a operating liability)

Current liability -notes payable will be equal to account payable here

so we can write the same as operating net working capital = current asset - account payabale

=1000 - 300 = $700  

Thanks