The following items were reported on the balance sheets and income statement for Carlton Co.: What amount would be reported in the operating activities section of the statement of cash flows for collections from customers under the direct method assuming that all sales are on credit?
A)$850,000
B)$857,000
C)$843,000
D)Cannot be determined without further information.

Question

The following items were reported on the balance sheets and income statement for Carlton Co.:  What amount would be reported in the operating activities section of the statement of cash flows for collections from customers under the direct method assuming that all sales are on credit?
A)$850,000 
B)$857,000 
C)$843,000 
D)Cannot be determined without further information.

Quizplus · Accepted Answer

To calculate the collections from customers under the direct method, we need the information on the changes in accounts receivable. As we do not have this information, we cannot calculate the exact amount. However, we know that the total sales for the year were $960,000 (from the income statement), and assuming that all sales were on credit, we can estimate the collections from customers by subtracting the increase in accounts receivable from the total sales. We can see from the balance sheets that accounts receivable increased from $95,000 to $108,000, which is a difference of $13,000. Therefore, the estimated collections from customers would be $960,000 - $13,000 = $947,000. However, this is only an estimate and we cannot be certain without further information. Of the given choices, the closest to the estimated collections is B) $857,000.

The Following Items Were Reported on the Balance Sheets and Income