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29 January, 11:17

Barron Company accepts a credit card as payment for $1,200 of services provided to a customer. The credit card company charges a 5% handling fee for its collection services. Select the answer that shows how the entry to recognize the event would affect Barron's financial statements.

a. Assets will increase by $1,140.

b. Revenue will increase by $1,200.

c. Expenses will increase by $60.

d. All of the answers describe effects that will occur as a result of recognizing this event.

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Answers (1)
  1. 29 January, 13:39
    0
    Option (d) is correct.

    Explanation:

    Given that,

    Services provided = $1,200

    Handling fee = 5%

    The Journal entry is as follows:

    Cash A/c Dr. $1,140

    Handling charges or Commission Expense A/c Dr. $60

    To Sales Revenue $1,200

    (To record the amount received for services provided earlier)

    Workings:

    Cash received = Sales revenue - Handling charges

    = $1,200 - (5% * $1,200)

    = $1,200 - $60

    = $1,140

    Therefore, the assets increases by $1,140 in the form of cash, the revenue will increases by $1,200 and the expenses increases by $60.
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