Effect of credit card sales on financial statementsRoyal Carpet Cleaning provided $90,000...

Effect of credit card sales on financial statements

Royal Carpet Cleaning provided $90,000 of services during 2012, its first year of operations. All customers paid for the services with major credit cards. Royal submitted the credit card receipts to the credit card company immediately. The credit card company paid Royal cash in the amount of face value less a 3 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 below. 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. 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)Why would Royal Carpet Cleaning accept credit cards instead of providing credit directly to its customers? In other words, why would Royal be willing to pay 3 percent of sales to have the credit card company handle its sales on account?