In its accrual basis income statement for the year ended December 31,2014,Braxton Company reported revenue of $3,500,000.Additional information is as follows: Nelson should report cash collected from customers in its 2014 statement of cash flows (direct method)in the amount of
A) $3,760,000.
B) $3,380,000.
C) $3,100,000.
D) $3,140,000.

Question

In its accrual basis income statement for the year ended December 31,2014,Braxton Company reported revenue of $3,500,000.Additional information is as follows:  Nelson should report cash collected from customers in its 2014 statement of cash flows (direct method)in the amount of
A) $3,760,000. 
B) $3,380,000. 
C) $3,100,000. 
D) $3,140,000.

Quizplus · Accepted Answer

To calculate cash collected from customers using the direct method, we need to adjust for changes in accounts receivable. We can use the following formula:

Cash collected from customers = Revenue + Beginning accounts receivable - Ending accounts receivable

We are given revenue as $3,500,000 in the income statement. However, we are not given information about beginning and ending accounts receivable directly. We can use the fact that the accrual basis income statement recognizes revenue earned but not necessarily collected in cash. This means that if accounts receivable increased during the year, the amount of revenue earned but not collected would be higher than $3,500,000.

From the additional information given, we know that accounts receivable increased by $660,000 during the year. This means that the cash collected from customers was less than $3,500,000. To get the exact amount, we need to subtract the increase in accounts receivable from revenue:

Cash collected from customers = $3,500,000 - $660,000 = $2,840,000

However, this is the amount of cash collected during the year, not just in 2014. To get the amount collected in 2014, we need to adjust for any receivables outstanding at the beginning of the year:

Cash collected from customers in 2014 = Cash collected from customers + Beginning accounts receivable - Ending accounts receivable

Since we are not given beginning accounts receivable, we cannot calculate this exactly. However, we can assume that the beginning and ending balances are similar and use an approximation:

Cash collected from customers in 2014 ≈ Cash collected from customers + (Ending accounts receivable / 2)

Plugging in the values we have, we get:

Cash collected from customers in 2014 ≈ $2,840,000 + ($660,000 / 2) = $3,140,000

Therefore, the answer is D) $3,140,000.

In Its Accrual Basis Income Statement for the Year Ended