Question

Wolverine, Inc. began operations on January 1 of the current year with a $13,000 cash balance. 45% of sales are collected in the month of sale; 55% are collected in the month following sale. Similarly, 15% of purchases are paid in the month of purchase, and 85% are paid in the month following purchase. The following data apply to January and February:

	January	February
Sales	$ 45,000	$ 65,000
Purchases	35,000	50,000
Operating expenses	8,000	10,000

If operating expenses are paid in the month incurred and include monthly depreciation charges of $3,500, determine the change in Wolverine's cash balance during February.

Answer 1

Ans.	Statement of change in Wolverine's cash balance :
	Particulars			January	February
	Opening Cash balance			13,000	20,000
	Sales			20,250	54,000
				33,250	74,000
	Less:
	Purhases			5,250	37,250
	Operating expenses			8,000	10,000
	Ending Balance			20,000	26,750
	Working Note:
	1) Cash received from Sales:
	January Sales =		$ 45,000 x 45%
	=		20,250
	Februay Sales =		($ 45,000 x 55%) + ($65,000 x 45%)
	=		$24,750 + $29,250
	=		$54,000
	2) Cash Paid for Purchases :
	January Purchase =		$ 35,000 x 15%
	=		5,250
	Februay Purchase =		($ 35,000 x 85%) + ($50,000 x 15%)
	=		$29,750 + $7,500
	=		$37,250