Question

Wolverine, Inc. began operations on January 1 of the current year with a $12,400 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 $ 39,000 $ 59,000
Purchases 32,000 44,000
Operating expenses7,400 9,400
If operating expenses are paid in the month incurred and include monthly depreciation charges of $2,900, determine the change in Wolverine's cash balance during February.
a) $4,800 increase.
b) $7,700 increase.
c) $10,550 increase.
d) $13,450 increase.
e) Some other amount.

Answer 1

$7,700 increase

Step-by-step explanation:

We can determine the change in Wolverine's cash balance by deducting the cash disbursement and operating expenses from the cash receipts.\

Change in cash balance = Cash receipts - Cash disbursement - Operating expense

Change in cash balance = $48,000 - $33,800 -$6,500

Change in cash balance = $7,700

WORKING:

Cash Receipts

Sales

February ( 59,000 x 45%) $26,550

January ( 39,000 x 55%) $21,450

Total $48,000

Cash disbursement

Purchases

February ( 44,000 x 15%) $6,600

January ( 32,000 x 85%) $27,200

Total $33,800

Operating expenses

Incurred $9,400

Depreciation ($2,900)

Net $6,500