Question

During its first year of operations, Drone Zone Corporation (DZC) bought goods from a manufacturer on account at a cost of $56,000. DZC returned $8,600 of this merchandise to the manufacturer for credit on its account. DZC then sold $44,000 of the remaining goods at a selling price of $70,600. DZC records sales returns as they occur and then records estimated additional returns at year-end. During the year, customers returned goods that had been sold at a price of $7,400. These goods were in perfect condition, so they were put back into DZC’s inventory at their cost of $4,600. At year-end, DZC estimated $9,610 of current year merchandise sales would be returned to DZC in the following year; DZC estimates $5,900 as its cost of this merchandise. Prepare journal entries to record DZC's transactions and estimates, assuming DZC uses a perpetual inventory system.

Answer 1

Answer:

Inventory                 56,000 debit

 Accounts payable                       56,000 credit

Accounts payable     8,600 debit

          inventory                               8,600 credit

Accounts receivable 70,600 debit

          service revenues                70,600 credit

Cost of Goods Sold   44,000 debit

        Inventory                              44,000 credit

sales returns&allwoance 7,400 debit

              Accounts receivable       7,400 credit

Inventory                     4,600 debit

   Cost of goods sold                    4,600 credit

sales returns&allwoance 9,610 debit

  Allowance for sales returns       9,610 debit

Explanation:

most are self-explanatory

 For the returns we decrease teh accounts receivables and use sales retuns and allowance to latter calcualte net sales.

Next we decrease COGS for the amount of inventory which can be resale.

 The last one, we need to decrease the accounts receivables for the expected amount customer will return so we use an allowance account rather than directly decrease accounts receivables. This is the same procedure like expected uncollectible ammounts