Ultra Day Spa provided $120,000 of services during 2016. All customers paid for
ID: 2463315 • Letter: U
Question
Ultra Day Spa provided $120,000 of services during 2016. All customers paid for the services with credit cards. Ultra submitted the credit card receipts to the credit card company immediately. The credit card company paid Ultra cash in the amount of face value less a 5 percent service charge. Required a. Record the credit card sales and the subsequent collection of accounts receivable in a horizontal statementsmodel like the one shown here. In the Cash Flow column, indicate whether the item is an operating activity (OA), investing activity (IA), or financing activity (FA). Use NA to indicate that an element is not affected by the event. Assets = Liab. + Equity Rev. - Exp = Net Inc. Cash Flow Cash + Accts. Rec b. Based on this information alone, answer the following questions: (1) What is the amount of total assets at the end of the accounting period? (2) What is the amount of revenue reported on the income statement? (3) What is the amount of cash flow from operating activities reported on the statement of cash flows? (4) What costs would a business incur by accepting credit cards?
Explanation / Answer
Answer:a
Sales: Assets would increase by $114000 = Liabilities (NA) + Equity would increase (Inc. in income of $114000)
Subsequent Collection = No change in assets (receivable would reduce by $114000 and cash would increase by $114000 = Liabilities (NA) + Equity (NA)
Revenue - Expense = Net Income
Revenue would increase by $120,000 - Expense would be $6000 = $114000 Net Income.
Cash flow: OA would be $114000 showing collections, Investing (NA) and Financing (NA)
Cash + Accounts Receivable: Cash would increase by $114000. Receivables would reduce by $114000 following collection, hence net effect is zero.
Answer:b
(1) $114000
(2) 120000-6000=114000
(3) 114000
(4) 6000
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