Question

Wolfe, 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:

If operating expenses are paid in the month incurred and include monthly depreciation charges of $2,500, determine the change in Wolfe's cash balance during February.
A. $2,000 increase.
B. $4,500 increase.
C. $5,000 increase.
D. $7,500 increase.
E. Some other amount.

Answer 1

Without complete sales and purchase figures for January and February, it is not possible to accurately determine the change in Wolfe, Inc.'s cash balance during February. To complete this task, we would need to know these figures to calculate cash collected, cash paid out for purchases, and then subtract operating expenses.

Step-by-step explanation:

To determine the change in Wolfe, Inc.'s cash balance during February, we must consider cash collections from sales, payments for purchases and the operating expenses.

Wolfe, Inc. operates with a cash collection schedule of 40% in the month of sale and 60% in the month following sale. Likewise, the company pays for purchases with 20% in the month of purchase and 80% in the month following purchase. Operating expenses, including depreciation charges, are paid in the month they are incurred.

Unfortunately, the question does not provide the necessary sales and purchase figures for January and February, thus we cannot compute the exact change in the cash balance. To calculate the change, we would need to perform the following steps:

1. 
   
3. Add cash collected from the current and previous month's sales.
4. 
   
6. Subtract cash paid for the current and previous month's purchases.
7. 
   
9. Subtract operating expenses paid in the current month.

Since the depreciation is a non-cash expense, it would not impact the cash balance calculation. However, the actual cash balance change can only be determined with complete data on sales, purchases, and operating expenses. Without this information, a definitive answer cannot be provided.