Question

Prepare journal entries for Buffalo to record (1) the sale on March 10, 2020, (2) the return on March 25, 2020, and (3) any adjusting entries required on March 31, 2020 (when Buffalo prepares financial statements). Buffalo believes the original estimate of returns is correct.

Answer 1

Answer:

1) Debit Account Receivable/Bank Account - Sales Amount

Credit Sales Account - Sales amount

Credit Inventory Account - Cost of the product

Debit Cost of Sales  - Cost of the product

2) Debit Sales Account - Sales Amount

Credit Cost of Sales - cost of the product

Credit Account Receivable/ Bank - Refund Amount

Debit Inventory Account- Cost of the product

3)

a)Any increase in returns over estimate

Debit Sales Account - Difference in sales Value

Credit Cost of Sales -  Difference in cost of the product

Credit Account Receivable/ Bank -  Difference Refund Amount

Debit Inventory Account- Difference in Cost of the product

b) Any Decrease in returns over estimate

Debit Sales Account - Decrease in Sales Amount

Credit Cost of Sales - Decrease in cost of the product

Credit Account Receivable/ Bank - Decrease in refund Amount

Debit Inventory Account- Decrease Cost of the product

Explanation:

Answer 2

Answer:

1) the sale on March 10, 2020

Dr.Accounts Receivable (200 x 50)...10,000

Cr. Sales..............................................................10,000

2) the return on March 25, 2020

Dr. Sales Returns (200 x 6).....1,200

Cr. Accounts Receivables...................1,200

Explanation:

On March 10, 2017, Steele Company sold to Barr Hardware 200 tool sets at a price of $50 each (cost $30 per set) with terms of n/60, f.o.b. shipping point. Steele allows Barr to return any unused tool sets within 60 days of purchase. Steele estimates that (1) 10 sets will be returned, (2) the cost of recovering the products will be immaterial, and (3) the returned tools sets can be resold at a profit. On March 25, 2017, Barr returned 6 tool sets and received a credit to its account.

1) the sale on March 10, 2020

Dr.Accounts Receivable (200 x 50)...10,000

Cr. Sales..............................................................10,000

2) the return on March 25, 2020

Dr. Sales Returns (200 x 6).....1,200

Cr. Accounts Receivables...................1,200

3) any adjusting entries required on March 31, 2020 - it means that 10% of 200 pieces sold was returned and we only accounted for 6 so far, leaving 14 pieces.

Dr. Sales Returns (200 x 14)....2,800

Cr. Accounts Receivable............................2,800