Question

The change in each of Kendall Corporation's balance sheet accounts last year follows:

	Increase			Decrease
Cash and cash equivalents	$	3,000
Accounts receivable	$	2,000
Inventory				$	3,000
Prepaid Expenses	$	4,000
Long-term Investments				$	15,000
Property, Plant and Equipment	$	10,000
Accumulated Depreciation	$	8,000
Accounts payable				$	9,000
Accrued Liabilities	$	6,000
Bonds Payable				$	13,000
Common Stock	$	5,000
Retained Earnings	$	4,000

Kendall Corporation's income statement for the year was:

Sales	$	300,000
Cost of goods sold		180,000
Gross margin		120,000
Selling and administrative expense		116,000
Net income	$	4,000

There were no sales or retirements of property, plant, and equipment and no dividends paid during the year. The company pays no income taxes and it did not purchase any long-term investments, issue any bonds payable, or repurchase any of its own common stock. The net cash provided by (used in) operating activities on the statement of cash flows is determined using the direct method.

Using the direct method, sales adjusted to a cash basis would be:

$300,000

$302,000

$298,000

$305,000

Answer 1

Correct answer---------$ 298,000

Working

Cash received from customers
Service revenue	$ 300,000
Less: Increase in accounts receivable	-$ 2,000
Cash received from customers	$ 298,000