Question

Teal Publishing Co. publishes college textbooks that are sold to bookstores on the following terms. Each title has a fixed wholesale price, terms f.o.b. shipping point, and payment is due 60 days after shipment. The retailer may return a maximum of 30% of an order at the retailer’s expense. Sales are made only to retailers who have good credit ratings. Past experience indicates that the normal return rate is 11%. The costs of recovery are expected to be immaterial, and the textbooks are expected to be resold at a profit.

On July 1, 2017, Teal shipped books invoiced at $15,900,000 (cost $12,720,000). Prepare the journal entry to record this transaction. (Credit account titles are automatically indented when amount is entered. Do not indent manually.If no entry is required, select "No entry" for the account titles and enter 0 for the amounts.)

Account Titles and Explanation	Debit	Credit
(To recognize revenue.)
(To record cost of goods sold.)

On October 3, 2017, $1,590,000 of the invoiced July sales were returned according to the return policy, and the remaining $14,310,000 was paid. Prepare the journal entries for the return and payment. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No entry" for the account titles and enter 0 for the amounts.)

Date	Account Titles and Explanation	Debit	Credit
Oct. 3, 2017
	(To record the return)
	(To record cost of goods returned)

Assume Teal prepares financial statements on October 31, 2017, the close of the fiscal year. No other returns are anticipated. Indicate the amounts reported on the income statement and balance related to the above transactions. (If answer is 0, please enter 0. Do not leave any fields blank.)

Income Statement (partial) October 31, 2017For the Year Ended October 31, 2017For the Quarter Ended October 31, 2017
		$
AddLess :
Dividends DeclaredExpensesGross profitNet Income / (Loss)Net Income to Retained EarningsNet SalesRetained Earnings 11/1Retained Earnings 10/31RevenuesTotal Cost & ExpensesTotal Revenues
Dividends DeclaredExpensesGross profitNet Income / (Loss)Net Income to Retained EarningsNet SalesRetained Earnings 11/1Retained Earnings 10/31RevenuesTotal Cost & ExpensesTotal Revenues		$

Balance Sheet (partial) October 31, 2017For the Year Ended October 31, 2017For the Quarter Ended October 31, 2017
		$

Answer 1

Percentage of invoice value returned (1590000/15900000)			10%
Date	Account Titles and Explanation	Debit	Credit
July 1, 2017	Accounts receivable	$         15,900,000
	Sales revenue		$         15,900,000
	(To recognize revenue.)
July 1, 2017	Cost of goods sold	$         12,720,000
	Inventory		$         12,720,000
	(To record cost of goods sold.)
Date	Account Titles and Explanation	Debit	Credit
Oct. 3, 2017	Sales returns and allowances	$           1,590,000
	Accounts receivable		$            1,590,000
	(To record the return.)
Oct. 3, 2017	Inventory	$           1,272,000
	Cost of goods sold		$            1,272,000
	(To record cost of goods returned.) (12720000*10%)
Oct. 3, 2017	Cash	$         14,310,000
	Accounts receivable		$         14,310,000
	(To record then cash received from customers.)
Income Statement (partial)
For the Year Ended October 31, 2017
	Net Sales (15900000-1590000)		$         14,310,000
Less:	Cost of goods sold (12720000-1272000)		$         11,448,000
	Gross profit		$            2,862,000
Balance Sheet (partial)
October 31, 2017
	Cash		$         14,310,000