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Q5SE

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Horngren'S Financial And Managerial Accounting
Found in: Page 296

Short Answer

On December 31, Jack Photography Supplies estimated that approximately 2% of merchandise sold will be returned. Sales Revenue for the year was $80,000 with a cost of $48,000. Journalize the adjusting entries needed to account for the estimated returns.

Answer

The total of debits and credits is $2,560.

See the step by step solution

Step by Step Solution

Step 1: Meaning of Sales Returns

In accounting, the term sales returns denote the goods returned by the customers to the business entity due to damages or defects. Sales returns are reported differently under periodic and perpetual inventory systems.

Step 2: Preparation of adjusting journal entries

Date

Accounts and Explanation

Debit ($)

Credit ($)

Dec 31

Sales revenue (80,000*2%)

1,600

Refunds payable

1,600

(To record the estimated returns)

Dec 31

Estimated returns inventory

Cost of goods sold (48,000*2%)

960

(To record the cost of goods sold)

960

Most popular questions for Business-studies Textbooks

Journalize the following transactions that occurred in January 2018 for Sylvia’s Amusements. No explanations are needed. Identify each accounts payable and accounts receivable with the vendor or customer name. Sylvia estimates sales returns at the end of each month.

Jan. 4 Purchased merchandise inventory on account from Vanderbilt Company, $7,000. Terms 1/10, n/EOM, FOB shipping point.

6 Paid freight bill of $100 on January 4 purchase.

8 Returned half the inventory purchased on January 4 from Vanderbilt Company.

10 Sold merchandise inventory for cash, $1,600. Cost of goods, $640. FOB destination.

11 Sold merchandise inventory to Graceland Corporation, $10,800, on account, terms of 1/10, n/EOM. Cost of goods, $5,400. FOB shipping point.

12 Paid freight bill of $60 on January 10 sale.

13 Sold merchandise inventory to Cabbell Company, $9,500, on account, terms of n/45. Cost of goods, $5,225. FOB shipping point.

14 Paid the amount owed on account from January 4, less return and discount.

17 Received defective inventory as a sales return from the January 13 sale, $600. Cost of goods, $300.

18 Purchased inventory of $4,600 on account from Roberts Corporation. Payment terms were 3/10, n/30, FOB destination.

20 Received cash from Graceland Corporation, less discount.

26 Paid amount owed on account from January 18, less discount.

28 Received cash from Cabbell Company, less return.

29 Purchased inventory from Sandra Corporation for cash, $11,600, FOB shipping point. Freight in paid to shipping company, $240.

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