Question

During 2021, its first year of operations, Hollis Industries recorded sales of $10,000,000 and experienced returns of $730,000. Cost of goods sold totaled $6,500,000 (65% of sales). The company estimates that 9% of all sales will be returned.

Prepare the year-end adjusting journal entries to account for anticipated sales returns under the assumption that all sales are made for cash (no accounts receivable are outstanding). (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
   

Answer 1

Calcaulation of amount of remaining estimated sales returns :

Estimated sales returns (10,000,000 * 9% ) 9,00,000

Less: Actual returns (7,30,000)

Remaining estimated sales returns 1,70,000

Year end adjusting entry for expected sales returns :

31/12/2021 Sales returns Dr. $1,70,000

Allowance for sales returns $1,70,000

Cost of sales returned :

Amount of cost of goods sold of sales returns = 1,70,000 * 65%

= $1,10,500

Adjusting entry for cost of goods sold of sales returns :

31/12/2021 Inventory Dr. $1,10,500

Cost of goods sold $1,10,500