Bank Cards VISA and MasterCard are used to pay for a large percentage of retail purchases. The financial arrangements are similar for both bank cards. A news story said: If a cardholder charges a $600 briefcase, for instance, the merchant deposits the sales draft with his bank, which immediately credits $600 less a small transac- tion fee (usually 2% of the sale) to the merchant's account. The bank that issued the customer his card then pays the merchant's bank $600 less a 1.5% transaction fee. allowing the merchant's bank a 0.5% profit on the transaction. 1. Prepare the journal entry for the sale by the merchant. 2. Prepare the journal entries for the merchant's bank concerning

(a) the merchant's deposit and

(b) the collection from the customer's bank that issued the card. 3. Prepare the journal entry for the customer's bank that issued the card. 4. The national losses from bad debts for bank cards are about 1.8% of the total billings to card- holders. If so, how can the banks justify providing this service if their revenue from processing is typically 1.5% to 2.0%?