Rainbow, Inc

question 50

Multiple Choice

Rainbow, 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 Rainbow's cash balance during February.

• A) $2,000 increase.
• B) $4,500 increase.
• C) $5,000 increase.
• D) $7,500 increase.
• E) None of the answers is correct.