The Griffin Corporation accepted a credit card for a sale of $3,000 on December 16, Year 1. The credit card company charges a fee of 4%. On January 5, Year 2, Griffin received payment from the credit card company. Indicate whether each of the following statements is true or false.
a)Griffin should record $2,880 of revenue in Year 1 when the sale is made.b)Griffin should increase the balance of the accounts receivable by $3,000 on December 16, Year 1.c)The sale has no impact on the statement of cash flows in Year 1.d)The collection of cash increases total assets in Year 2.e)The December 16 transaction increases total revenues and total expenses on the Year 1 income statement.

Question

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b)False c)True d)False e)Ta)This is false. Revenue for the full amount of the sale of $3,000 is recorded when the sale is made.b)This is false. The increase to the accounts receivable equals the amount due of $2,880 [or $3,000 − ($3,000 × 4%)].c)This is true. The cash flow is reported in Year 2 when cash is received from the credit card company.d)This is false. The collection of cash has no net effect on total assets because the increase to assets (cash)in the amount of $2,880 [or $3,000 − ($3,000 × 4%)] is offset by a decrease in assets (accounts receivable)in the amount of $2,880.e)This is true. The transaction on December 16 increases revenue by $3,000 and increases expense (credit card expense)by $120 (or $3,000 × 4%).

The Griffin Corporation Accepted a Credit Card for a Sale