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.
$6,750 increase.
$10,250 increase.
$11,750 increase.
$15,250 increase.
Some other amount.
Solution:
Schedule of change in cash balance | ||
Particulars | January | February |
Opening cash balance | $13,000.00 | $23,500.00 |
Add: Cash Collection: | ||
January Sales | $20,250.00 | $24,750.00 |
February Sales | $29,250.00 | |
Less: Cash payments | ||
January Purchases | $5,250.00 | $29,750.00 |
February Purchases | $7,500.00 | |
Operating expenses | $4,500.00 | $6,500.00 |
Ending Cash balance | $23,500.00 | $33,750.00 |
Increase in cash balance february | $10,250.00 |
Hence 2nd option is correct.
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