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.

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

Explanation / Answer

Ans. Statement of change in Wolverine's cash balance : Particulars January February    Opening Cash balance          13,000          20,000    Sales          20,250          54,000          33,250          74,000 Less:    Purhases            5,250          37,250    Operating expenses            8,000          10,000    Ending Balance          20,000          26,750 Working Note: 1) Cash received from Sales: January Sales = $ 45,000 x 45% = 20,250 Februay Sales = ($ 45,000 x 55%) + ($65,000 x 45%) = $24,750 + $29,250 = $54,000 2) Cash Paid for Purchases : January Purchase = $ 35,000 x 15% = 5,250 Februay Purchase = ($ 35,000 x 85%) + ($50,000 x 15%) = $29,750 + $7,500 = $37,250

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