The following items were reported on the balance sheets and income statement for Carlton Co.: $\begin{array}{lr}
\text { Accounts receivable, December } 31,2017 & \$ 185,000 \
\text { Accounts receivable, December } 31,2018 & 178,000 \
\text { Sales-2018 } & 850,000
\end{array}$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.: $\begin{array}{lr}
\text { Accounts receivable, December } 31,2017 & \$ 185,000 \
\text { Accounts receivable, December } 31,2018 & 178,000 \
\text { Sales-2018 } & 850,000
\end{array}$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 collections from customers under the direct method, start with the sales on credit and adjust for the change in accounts receivable. Sales were $850,000. Accounts receivable decreased from $185,000 to $178,000, indicating that $7,000 more cash was collected than sales made on credit. Therefore, collections from customers would be $850,000 + $7,000 = $857,000.

The Following Items Were Reported on the Balance Sheets and Income