Practice prompt · Q:transactions-to-statements/working-capital-001

Equal working capital at unequal scale

Formative check on the working capital difference, current ratio complement, and limits of an equal dollar comparison.

Updated Aug 6, 2026 Review due Nov 6, 2026

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Northstar reports $120,000 current assets and $80,000 current liabilities. A smaller peer reports $60,000 current assets and $20,000 current liabilities. The classifications, date, units, and policies are comparable, but no asset- quality, maturity, cash-flow, or funding detail is supplied. Which conclusion is supported?

Choose the best answer. A Both have $40,000 working capital; Northstar's current ratio is 1.50 and the peer's is 3.00; neither fact alone proves equal or superior practical liquidity. B Both have $40,000 Cash available because working capital is the amount left after reserving for current liabilities. C Northstar has better liquidity because its current assets are larger in dollars, regardless of its larger current liabilities. D The peer has proven better liquidity because a 3.00 current ratio is always preferable to 1.50.

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Answer: A

Northstar's working capital is $120,000 minus $80,000, or $40,000; the peer's is $60,000 minus $20,000, also $40,000. Their current ratios are 1.50 and 3.00. The metrics show equal dollar differences and unequal relative coverage, not a complete liquidity ranking. Choice A is correct.