Question

During 2021, its first year of operations, Hollis Industries recorded sales of $10,500,000 and experienced returns of $750,000. Cost of goods sold totaled $7,350,000 (70% of sales). The company estimates that 9% of all sales will be returned. Prepare the year-end adjusting journal entries to account for anticipated sales returns under the assumption that all sales are made for cash (no accounts receivable are outstanding).

Answer 1

Answer:

The adjusting entries are as follows

Explanation:

The adjusting entries are as follows

1. Sales return Dr $195,000

         To Refund liabilities $195,000

(Being the sales return is recorded)

It is computed below:

= $10,500,000 × 9% - $750,000

= $195,000

2. Inventory estimated returns Dr $136,500  

       To Cost of goods sold $136,500  

(Being the inventory estimated return is recorded)

It is computed below:

= $195,000 × 70%

= $136,500