Statement of Cash Flows Fina's Faucets,Inc.has net cash flows from operating activities for the last year of $17 million.The income statement shows that net income is $15 million and depreciation expense is $6 million.During the year,the change in inventory on the balance sheet was an increase of $4 million,change in accrued wages and taxes was an increase of $1 million and change in accounts payable was an increase of $1 million.At the beginning of the year the balance of accounts receivable was $5 million.What was the end of year balance for accounts receivable?
A)$2 million
B)$3 million
C)$7 million
D)$9 million

Question

Quizplus · Accepted Answer

To find the end of year balance for accounts receivable, we need to use the formula:

Beginning balance + Net credit sales - Collections = Ending balance.

We are given that the beginning balance of accounts receivable was $5 million.

From the information given in the problem, we can calculate the net credit sales as follows:

Net income + Depreciation expense = Operating cash flows
$15 million + $6 million = $21 million

Operating cash flows = Net cash flows from operating activities + Increase in inventory + Increase in accrued wages and taxes - Increase in accounts payable
$17 million + $4 million + $1 million - $1 million = $21 million

Therefore, the net credit sales for the year were $21 million.

We are not given the amount of collections during the year, but we know that the ending balance of accounts receivable must have been $7 million ($5 million + net credit sales - collections).

Therefore, the end of year balance for accounts receivable was $7 million (Option C).