Question

Scott Company had sales of $12,350,000 and related cost of goods sold of $7,500,000. Scott provides customers a refund for any returned or damaged merchandise. At the end of the year, Scott estimates that customers will request refunds for 0.8% of sales and estimates that merchandise costing $48,000 will be returned. Journalize the adjusting entries on December 31 to record the expected customer returns. Refer to the Chart of Accounts for exact wording of account titles.

Answer 1

The adjusting journal entries to record the adjustments in the books of Scott Company are as follows:

Journal Entries:

December 31;

Debit Sales $98,800

Credit Cash Refundable $98,800

• To record expected cash refunds.

Debit Inventory $48,000

Credit Cost of goods sold $48,000

• To record expected merchandise returns.

Data Analysis:

Sales = $12,350,000

Cost of goods sold = $7,500,000

Estimated percentage refunds = 0.8% of sales

Expected Refunds = $98,800 ($12,350,000 x 0.8%)

Returned goods = $48,000

Sales $98,800

Cash Refundable $98,800

Inventory $48,000

Cost of goods sold $48,000

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