Sebestian, Inc., began operations on January 1 of the current year with a $12,00
ID: 2562710 • Letter: S
Question
Sebestian, Inc., began operations on January 1 of the current year with a $12,000 cash balance. Forty percent of sales are collected in the month of sale; 60% are collected in the month following sale. Similarly, 20% of purchases are paid in the month of purchase, and 80% are paid in the month following purchase. The following data apply to January and February:
January
February
Sales
$35,000
$55,000
Purchases
30,000
40,000
Operating expenses
7,000
9,000
If operating expenses are paid in the month incurred and include monthly depreciation charges of $2,500, determine the change in Sebestian's cash balance during February.
$5,000 increase
$7,500 increase
$8,000 increase
$4,500 increase
$2,000 increase
January
February
Sales
$35,000
$55,000
Purchases
30,000
40,000
Operating expenses
7,000
9,000
Explanation / Answer
Ans . Option D - $4500 increase Solution :- January Amount Cash at the beginning $ 12,000.00 Cash collected(35000*60%) $ 14,000.00 Cash paid for purchase(30,000*20%) $ (6,000.00) Cash paid for operating expenses(7000 - 2500) $ (4,500.00) Total cash balance at the End of January $ 15,500.00 February Cash at the beginning $ 15,500.00 Cash collected for current month(55000*40%) $ 22,000.00 Cash collected for last month(35000*60%) $ 21,000.00 Cash paid for current month's purchase(40,000*20%) $ (8,000.00) Cash paid for last month's purchase(30,000*80%) $ (24,000.00) Cash paid for operating expenses(9000 - 2500) $ (6,500.00) Total cash balance at the End of February $ 20,000.00 Change in cash balance during february :- Total cash balance at the End of February $ 20,000.00 Cash at the beginning of february $ (15,500.00) Increase in cash $ 4,500.00
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