Johnson, Inc. owns control over Kaspar, Inc. Johnson reports sales of $400,000 during 2011 while Kaspar reports $250,000. Kaspar transferred inventory during 2011 to Johnson at a price of $50,000. On December 31, 2011, 30 percent of the transferred goods are still in Johnson's inventory. Consolidated accounts receivable on January 1, 2011 was $120,000, and on December 31, 2011 is $130,000. Johnson uses the direct approach in preparing the statement of cash flows. How much is cash collected from customers in the consolidated statement of cash flows?
A) $590,000.
B) $610,000.
C) $625,000.
D) $635,000.
E) $650,000.

Question

Quizplus · Accepted Answer

Consolidated sales = $400,000 + $250,000 = $650,000. Accounts receivable increased by $10,000 during the year. Thus, cash collected from customers is $650,000 - $10,000 = $640,000. However, we need to eliminate the intercompany sale of $50,000, of which 30% or $15,000 is still in Johnson's inventory. Thus, cash collected from customers in the consolidated statement of cash flows is $640,000 - $15,000 = $625,000.