Question

Lacey Company recorded sales of $2,000,000 on account on December 1, 2020. The company recorded actual returns of $25,000 on December 15, 2020. Lacey estimates sales returns at 3% of sales. Cost of goods sold is 50% of sales revenue. All sales are made on credit. a. Show the journal entry to record the sale on December 1, 2020. b. Show the journal entry to record actual returns on December 15, 2020 c. Prepare the adjusting entry, if any, related to estimated returns for the sales on December 31, 2020. d. What effect amount and direction) will this sale have on Retained Earnings on Oscar's financial statements for the period ended December 312 Indicate Increase, Decrease, or no effect AND by what amount.

Answer 1

Credit Debit 20,00,000 $ 20,00,000 Date Description a) 01-12-2020 Trade Receivables $ Sales (To record credit sales) b) 15-12-2020 Sales Return and Allowances $ Trade receivables (To record Actual Sales return) c) 31-12-2020 Sales Return and Allowances $ Allowances for Sales return & Allowances (To record estimated Sales return $1975000 x 3%) 25,000 25,000 59,250 $ 59,250 Net Sales less: Actual Sales return less: Estimated Sales retuns Net Sales revenue less: 50% of Sales revenue Net profit $ $ $ $ $ 20,00,000 25,000 59,250 19,15,750 9,57,875 9,57,875 Thus, Retained Earnings of Oscar will increase by $957,875

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