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: January February
Sales $35,000 $55,000
Purchases 30,000 40,000
Operating expenses 7,000 9,000

If operating expenses are paid in the month incurred and include monthly depreciation charges of $2,500, determine the change in Sebestian's cash balance during February.

a. $5,000 increase
b. $7,500 increase
c. $8,000 increase
d. $4,500 increase
e. $2,000 increase