Avatar Company uses the direct method to prepare its statement of cash flows. Please refer to the following information reported for the year 2014:
$$\begin{array}{l}
\begin{array} { l r }
\text { - Sales revenue: } & \$ 240,000 \
\text { - Interest revenue: } & \$ 1,000 \
\text { - Accounts receivable beginning balance: } & \$ 35,000 \
\text { Accounts receivable ending balance: } & \$ 31,000
\end{array}\
\text { There were no amounts reported for Interest receivable }
\end{array}$$
In the operating activity section of the statement of cash flows, what amount would be shown for total cash receipts?
A) $244,000
B) $237,000
C) $245,000
D) $235,000

Question

Avatar Company uses the direct method to prepare its statement of cash flows. Please refer to the following information reported for the year 2014:
$$\begin{array}{l}
\begin{array} { l r } 
\text { - Sales revenue: } & \$ 240,000 \
\text { - Interest revenue: } & \$ 1,000 \
\text { - Accounts receivable beginning balance: } & \$ 35,000 \
\text { Accounts receivable ending balance: } & \$ 31,000
\end{array}\
\text { There were no amounts reported for Interest receivable }
\end{array}$$
In the operating activity section of the statement of cash flows, what amount would be shown for total cash receipts?
A) $244,000
B) $237,000
C) $245,000
D) $235,000

Quizplus · Accepted Answer

The total cash receipts from operating activities would be calculated by adding the sales revenue and interest revenue, then adjusting for the change in accounts receivable. Sales revenue ($240,000) + Interest revenue ($1,000) = $241,000. Since accounts receivable decreased by $4,000 (from $35,000 to $31,000), this indicates that $4,000 more in cash was collected than was recognized as revenue. Therefore, total cash receipts are $241,000 + $4,000 = $245,000.

Avatar Company Uses the Direct Method to Prepare Its Statement