Question

On January 1, 2011, Grace Company had a $15,500 balance in the accounts receivable account and a zero balance in the allowance for doubtful accounts account. During 2011, Grace provided $57,500 of service on account. The company collected $48,150 cash from accounts receivable. Uncollectible accounts are estimated to be 17% of sales on account. Based on the information, the amount of cash flow from operating activities that would appear on the 2011 statement of cash flow is:

A. $50,090
B. $48,150
C. $41,210
D. $9,350

Answer 1

The amount of cash flow from operating activities that would appear on the 2011 statement of cash flow is $50,090 (option A).

Step-by-step explanation:

The amount of cash flow from operating activities that would appear on the 2011 statement of cash flow is $50,090 (option A).

To calculate the cash flow from operating activities, we need to consider the change in accounts receivable and the allowance for doubtful accounts. In 2011, Grace Company provided $57,500 of service on account, so the accounts receivable increased by $57,500. However, only $48,150 cash was collected from accounts receivable. This means there was a decrease of $9,350 in accounts receivable, which is deducted from net income to calculate cash flow from operating activities. Since the allowance for doubtful accounts had a zero balance at the beginning and end of the year, it does not affect the cash flow from operating activities. Therefore, the amount of cash flow from operating activities would be $57,500 - $48,150 - $9,350 = $50,090.