CFA Practice Question

There are 120 practice questions for this study session.

CFA Practice Question

Jumbo, Inc. had sales of $8,000 in November, $14,000 in December, and projects sales of $10,000 in January, $12,000 in February, and $8,000 in March. The firm's COGS in any given month is equal to 70% of the next month's sales. The firm collects its receivables in 60 days and pays its payables in 30 days. The firm begins January 1 with 10,000 in cash. All sales and purchases are on credit. There are no other costs or revenues. What is Jumbo's cash balance at the end of February? Assume there are 30 days in every month.
A. $13,600
B. $14,200
C. $16,600

User Contributed Comments 8

User Comment
lazio could someone break this down for me, please?
tom1980 January end cash balance: 10,000 - 7000 + 8000 = 11000, which is alsothe Feb beginning balance.
End FEB ending balance: 11000-8400+14000 = 16600
FIGER Since the credit period is 30 days the purchases of December (COGS) is due for payment in January and the receivables are collected after 60 days hence November revenue will be collected in January.......as explained above by tom...
yoshikoto why you don't include the COGS from November of 9,800 (=14,000 x 0.7)?
akjohn1 yoshi, you dont include the COGS of 9.8k from Nov because the company pays its accts payables within 30 days. This means that the outflow of 9.8k is accounted for in the starting cash balance of $10k, since they wouldve paid for the payables from Nov by Jan 1st. (jan 1st is more than 30 days after the end of Nov)
Querdenker Sory, but am I wrong here?
Jan end balance = 10,000 + 8,000 - 70% * 14,000 = 8,200
Feb end balance = 8,200 + 14000 - 70% * 10,000 = 15,200
Thecatz matching principle

COGS are paid when revenue are recognized (at the time of the sale). there is no credit on COGS.

tricky question...
Mikehuynh Cash balance at the end of Jan: 10,000+(8000-10,000*70%) = 11,000

=> cash balance at the end of Feb = 11,000+(14,000-12,000*70%)= 16,600
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