Answer and Explanation:
The amount and direction of the effect is presented below:
1 Transaction Sales Sales Sales Net Cost of Gross Revenues returns allowances Sales goods Profit
sold
(a) (b) (a)-(b)
a. $280,000 $280,000 $195,000
$85,000
b. $29,500 $4,500 -$34,000 -$20,270
$13,730
c. No effect No effect No effect No effect No effect No effect
2. Now the journal entries are as follows
a. Accounts receivable $280,000
To Sales revenues $280,000
(Being sales of account is recorded)
For recording this we debited the account receivable as it increased the assets and credited the revenues as it increase the sales
a-2 Cost of goods sold $195,000
To Merchandise Inventory $195,000
(Being cost of goods sold is recorded)
For recording this we debited the cost of goods sold as it increased the expenses and credited the inventory as it decreased the assets
b. Sales allowances and returns ($29,500 + $4,500) $34,000
To Accounts receivable $34,000
(Being Sales allownaces and returns is recorded) For recording this we debited the sales return as it increased it and credited the account receivable as it decreased the assets
b-2 Merchandise Inventory $20,270
To Cost of goods sold $20,270
(Being Cost of goods sold on goods returned)
For recording this we debited the merchandise inventory as it increased the assets and credited the cost of goods sold as it decreased the expenses
c Cash ($280,000 - $34,000) $246,000
To Accounts receivable $246,000
(Being Payment in full is recorded)
For recording this we debited the cash as it increased the assets and credoted the account receivable as it decreased the assets
