Question
Assume that Sears Company has a 12/31 fiscal year end. On 12/29/2016, Sears paid Wayne Gretzky $250,000 (in cash) to appear in TV commercials during
Assume that Sears Company has a 12/31 fiscal year end. On 12/29/2016, Sears paid Wayne Gretzky $250,000 (in cash) to appear in TV commercials during the two years encompassing 1/1/2017 to 12/31/2018. Half of the advertisements will be shown during fiscal 2017 and half will be shown during fiscal 2018. What is the effect of the 12/29/2016 payment on Sears 12/31/2016 working capital? Working capital is defined as current assets minus current liabilities.
- Sears 12/31/2016 working capital is unchanged by the 12/29/2016 transaction.
- Sears 12/31/2016 working capital is $125,000 lower than if the 12/29/2016 transaction had not been made.
- Sears 12/31/2016 working capital is $250,000 greater than if the 12/29/2016 transaction had not been made.
- Sears 12/31/2016 working capital is $125,000 greater than if the 12/29/2016 transaction had not been made.
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