Question

During 2021, its first year of operations, Hollis Industries recorded sales of $10,600,000 and experienced returns of $720,000. Cost of goods sold totaled $6,360,000 (60% of sales). The company estimates that 8% of all sales will be returned. Prepare the year-end adjusting journal entries to account for anticipated sales returns, assuming that all sales are made on credit and all accounts receivable are outstanding.

Answer 1

Answer:

Explanation:

The journal entries are shown below:

1. Sales revenue A/c Dr $128,000

        To Sales return and Allowances $128,000

(Being return sales is recorded)

The computation is shown below:

= Recorded sales × estimated returned percentage -  experienced returns

= $10,600,000 × 8% - $720,000

= $848,000 - $720,000

= $128,000

2. Inventory A/c Dr $76,800          ($128,000 × 60%)

           To Cost of goods sold $76,800

(Being returned cost of goods sold recorded)