The following transactions occurred during a company’s first year of operations:

I. Purchased a delivery van for cash

II. Borrowed money by issuance of short-term debt

III. Purchased treasury stock

Which of the items above caused a change in the amount of working capital?

Answer (D) is correct. Working capital is computed by deducting total current liabilities from total current assets. The purchase of a delivery van for cash reduces current assets and has no effect on current liabilities. The borrowing of cash by incurring short-term debt increases current assets by the same amount as it increases current liabilities; hence, it will have no effect on working capital. The purchase of treasury stock decreases current assets but has no effect on current liabilities. Thus, the purchases of the van and treasury stock affect working capital.