Ultra Day Spa provided $120,000 of services during 2016. All customers paid for
ID: 2463389 • 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 statements model 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.
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 if it maintained its own accounts receivable? What cost does a business incur by accepting credit cards?
Explanation / Answer
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?
Total Assets = $114,000
(2) What is the amount of revenue reported on the income statement?
Revenue = $120,000
(3) What is the amount of cash flow from operating activities reported on the statement of cash flows
Amount of Cash Flow = $114,000
(4) What costs would a business incur if it maintained its own accounts receivable? What cost does a business incur by accepting credit cards?
The Working Capital will be locked if it maintained its own accounts receivable which will incur interest cost and bad debt expense.
Business cost $6,000 by accepting credit cards.
Assets = Liabilities + Equity Revenue - Expense = Net Income Statement of Cash Flow Event Cash + Accts. Rec. 1 $114,000 + $0 = $0 + $114,000 NA 2 $120,000 - $6,000 = $114,000 OARelated Questions
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