Wolverine, Inc If Operating Expenses Are Paid in the Month Incurred and Year

question 78

Multiple Choice

Wolverine, 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: $\begin{array}{lrr}&\text { January } &\text { February }\\\text { Sales } & \$ 35,000 & \$ 55,000 \\\text { Purchases } & 30,000 & 40,000 \\\text { Operating expenses } & 7,000 & 9,000\end{array}$ If operating expenses are paid in the month incurred and include monthly depreciation charges of $2,500, determine the change in Wolverine'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 other answers are correct.

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