Question

A firm starts its year with positive net working capital. During the year, the firm acquires more short-term debt than it does short-term assets. This means that

Multiple Choice

the ending net working capital might be positive, negative, or equal to zero.

accounts payable increased and inventory decreased during the year.

the beginning current assets were less than the beginning current liabilities.

the ending net working capital will be negative.

both accounts receivable and inventory decreased during the year.

Answer 1

Answer is A.

At the beginning of the year, company had a positive net working capital. This means that the current assets are higher than the current liabilities.
During the year, company acquired more short term debt that it does short-term assets which means that increase in current liabilities is higher than the increase in current liabilities.

At the end of the year, Current assets can be higher than, equal to or less than Current liabilities.

The ending net working capital might be postive if current assets is greater than current liabilities.
The ending net working capital might be zero if current assets and current liabilities are equal.
The ending net working capital might be negative if current assets is lesser than current liabilities.

So, the ending net working capital might be positive, negative, or equal to zero.