Michelle’s Classic Clothing Store has extended credit to customers on open account. Its average experience for each of the past 3 years has been as follows:

Michelle Lebeck is considering whether to accept bank cards (for example, VISA or MasterCard). She has resisted because she does not want to bear the cost of the service, which would be 4% of gross sales.
The representative of VISA claims that the availability of bank cards would have increased overall sales by at least 10%. Regardless of the level of sales, the new mix of the sales would be 50% bank card and 50% cash.
1. How would a bank card sale of $300 affect the accounting equation? Where would the discount appear on the income statement?
2. Should Lebeck adopt the bank card if sales do not increase? Base your answer solely on the sparse facts given here.
3. Repeat requirement 2, but assume that total sales would increase 10%.

  • CreatedFebruary 20, 2015
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