Question

Jetson Spacecraft Corp. shows the following information on its 2015 income statement: sales = $316,547; costs = $219,406; other expenses = $8,481; depreciation expense = $18,633; interest expense = $14,216; taxes = $15,217; dividends = $10,678. In addition, you’re told that the firm issued $5,629 in new equity during 2015 and redeemed $3,283 in outstanding long-term debt. If net fixed assets increased by $24,154 during the year, what was the addition to NWC?

Answer 1

Answer:

Net working capital addition was for 8,108 dollars

Explanation:

To solve for NWC we start form the accounting equation and then, we expand it to get the NWC expression:

Assets = Liabilies + Equity

we expend the formula

current assets + fixed assets = current liabliies + non-currnet liab + stock + RE

NWC = net working capital

being: current assets - current liabilities

(current assets - current liabilities) =  non-currnet liab + stock + RE - fixed assets

NWC = -3,283 + 5,629 + RE - 24,154

We need to solve fotr the change in Retained Earnings:

which is net income - dividends:

sales                                316,547

costs                              (219,406)

other expenses                 (8,481)

depreciation expense    (18,633)

interest expense             (14,216)

taxes                                 (15,217)

                 net income      40,594

                dividends         (10,678)

          change in RE           29,916

NWC = -3,283 + 5,629 + 29,916 - 24,154

NWC = 8,108