Question

In its first year of business, Borden Corporation had sales of $2,040,000 and cost of goods sold of $1,220,000. Borden expects returns in the following year to equal 7% of sales. The adjusting entry or entries to record the expected sales returns is_________________.

Answer 1

The entries are as follows

To record estimated returns on Sales

Debit: Sales Refund Payable Account $142,800

Credit: Accounts Receivables $142,800

To record estimated Cost of Sales returns

Debit: Inventory Returns Estimated Account $85,400

Credit: Inventory on Sales on Returns $85,400

Explanation:

To derive the figure for Sales Refund payable for the year

7% of $2,040,000

=7/100*2040000= $142,800

To derive the figure for Inventory cost on Sales Refund payable for the year

7% of $1,220,000

=7/100*1220000

= $85400