Indicate how each of the following six differenttransactions that Dynamic Mattre
ID: 2457624 • Letter: I
Question
Indicate how each of the following six differenttransactions that Dynamic Mattress might make would affect (i) cashand (ii) net working capital:
a. Paying out a $2 million cash dividend.
b. A customer paying a $2,500 bill resulting from a previoussale.
c. Paying $5,000 previously owed to one of itssuppliers.
d. Borrowing $1 million long-term and investing the proceedsin inventory.
e. Borrowing $1 million short-term and investing theproceeds in inventory.
f. Selling $5 million of marketable securities for cash.
Explanation / Answer
a) decrease in working capital and cash of $2 million b) increase in cash, but no change in working capital because A/Ris reduced by the same amount. c) decrease in cash, but no change in working capital because A/Pis reduced by the same amount. d) increase in cash and increase in working capital because thedebt is long-term. e) increase in cash, but no change in working capital because thedebt is short-term f) increase in cash, but not change in w/capital because marketablesecurities are close to cash.