Question

Question 1 of 3 < > 0.5/1 E On October 2, 2020, Teal Company sold $5,510 of its elite camping gear (with a cost of $3,470) to Lynch Outfitters. As part of the sales agreement, Teal includes a provision that if Lynch is dissatisfied with the product, Teal will grant an allowance on the sales price or agree to take the product back (although returns are rare given the long-term relationship between Teal and Lynch). Teal expects total allowances to Lynch to be $770. On October 16, 2020, Teal grants an allowance of $390 to Lynch because the color for some of the items delivered was a bit different than what appeared in the catalog. (a) Your answer is correct. Prepare journal entries for Teal to record (1) the sale on October 2, 2020, (2) the granting of the allowance on October 16, 2020, and, (3) any adjusting required on October 31, 2020 (when Teal prepares financial statements). Teal now estimates additional allowances of $260 will be granted to Lynch in the future. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No entry" for the account titles and enter for the amounts.) No Account Titles and Explanation Debit Credit (1) Accounts Receivable 5510 Sales Revenue 5510 (To record sales on account) Cost of Goods Sold 3470 Inventory 3470 (To record cost of goods sold) (2) Sales Returns and Allowances 390 Accounts Receivable 390

Answer 1

Income Statement (partial)
For the Quarter Ended October 31, 2020
Sales Revenue	5,510
Less: Sales returns and allowances	650
Net Sales	4,860
Cost of Goods Sold	3,470
Gross Profit	1,390
Balance Sheet (partial)
At October 31, 2020
Accounts Receivable	5,120
Less: Allowance for sales returns and allowances	260
Accounts receivable (net)	4,860