Question

Botanic Choice sells natural supplements to customers with an unconditional sales return if they are not satisfied. The sales returns period extends 60 days. On February 10, 2018, a customer purchases $4,000 of products (cost $2,000). Assuming that based on prior experience, estimated returns are 20%. The journal entry to record the actual return of $250 of merchandise includes a
a. credit to Allowance for Sales Returns for $250.

b. credit to Returned Inventory for $125.

c. debit to Returned Inventory for $125.

d. debit to Estimated Inventory Returns for $125.

Answer 1

Answer:

Option (c) is correct.

Explanation:

The Journal entries are as follows:

(a) Sales Returns & Allowance A/c     Dr.  $250

To Account Receivable                                         $250

(To record the accounts receivable)

(b) Returned Inventory A/c     Dr. $125

To Cost of Goods Sold                            $125

(To record the actual return)

Workings:

Returned Inventory = 250 × (2000 ÷ 4000)

                                = $125