Question

Aamodt Music sold CDs to retailers and recorded sales revenue of $700,000. In 2012, retailers returned CDsto Aamodt and were granted a credit of $78,000. Past experience indicates that the normal return rate is 15%. Prepare Aamodt’s entries to record (a) the $78,000 of returns and(b) estimated returns at December 31, 2012

Answer 1

Solution-

a)

No	Accounts Titles and Explanations	Debit($)	Credit($)
1.	Sales returns and allowances	78000
	To Accounts receivable		78000

b)

No	Accounts Titles and Explanations	Debit($)	Credit($)
1.	Sales returns and allowances	27000
	To Allowance for Sales returns and allowances (Note)		27000

Note- Allowance for sales returns and allowances = [($700000 * 15%) - $78000] = $27000