Wolverine, Inc. began operations on January 1 of the current year with a $13,000

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:

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.

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

Explanation / Answer

Solution:

Hence 2nd option is correct.

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

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