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Chapter 5: Q5-15RQ (page 294)

Under the new revenue recognition standard, what most companies do at the end of the period related to sales returns? Describe the journal entries that would be recorded.

Short Answer

Expert verified

As per the newrevenue recognition standard, the companies must compute the net amount at the end of the period related to sales returns and estimate therefunds payable balances.

Step by step solution

01

Meaning of Sales Returns

In accounting, sales returns refer to thegoods returned by the buyer to the seller due to any damages, defects, or any other issue. Such returns decrease thesales revenues of thebusiness concern.

02

Companies’ responsibility at the end of the period

At the end of the accounting period, companies must compute thenet amount after the settlement of all the applicable discounts.

In addition, as per the new revenue recognition standard,refunds payable are required to be estimated and recorded.

03

Journal entries required

Date

Accounts and Explanation

Debit ($)

Credit ($)

Sales revenue

XXX

Refunds payable

XXX

(To record the refunds payable)

Estimated returned inventory

XXX

Cost of goods sold

XXX

(To record the cost of goods sold)

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Most popular questions from this chapter

Journalize the following transactions that occurred in September 2018 for Aquamarines. No explanations are needed. Identify each accounts payable and accounts receivable with the vendor or customer name. Aquamarines estimates sales returns at the end of each month.

Sep. 3 Purchased merchandise inventory on account from Sharpner Wholesalers, \(5,500. Terms 2/15, n/EOM, FOB shipping point.

4 Paid freight bill of \)85 on September 3 purchase.

4 Purchased merchandise inventory for cash of \(1,600.

6 Returned \)1,300 of inventory from the September 3 purchase.

8 Sold merchandise inventory to Herman Company, \(5,700, on account. Terms 2/15, n/35. Cost of goods, \)2,565.

9 Purchased merchandise inventory on account from Tucker Wholesalers, \(6,000. Terms 3/10, n/30, FOB destination.

10 Made payment to Sharpner Wholesalers for goods purchased on September 3, less return and discount.

12 Received payment from Herman Company, less discount.

13 After negotiations, I received a \)500 allowance from Tucker Wholesalers.

15 Sold merchandise inventory to Jerome Company, \(2,800, on account. Terms n/EOM. Cost of goods, \)1,200.

22 Made payment, less allowance, to Tucker Wholesalers for goods purchased on September 9.

23 Jerome Company returned \(200 of the merchandise sold on September 15. Cost of goods, \)80.

25 Sold merchandise inventory to Small for \(1,800 on account that cost \)738. Terms of 3/10, n/30 was offered, FOB shipping point. As a courtesy to Small, $40 of freight was added to the invoice, for which Aquamarines paid cash.

29 Received payment from Small, less discount.

30 Received payment from Jerome Company, less return.

Journalize the following transactions that occurred in November 2018 for May鈥檚 Adventure Park. Assume May鈥檚 uses the gross method to record sales revenue. No explanations are needed. Identify each accounts payable and accounts receivable with the vendor or customer name.

Nov. 4 Purchased merchandise inventory on account from Valera Company, \(8,000. Terms 1/10, n/EOM, FOB shipping point.

6 Paid freight bill of \)160 on November 4 purchase.

8 Returned half the inventory purchased on November 4 from Valera Company.

10 Sold merchandise inventory for cash, \(1,700. Cost of goods, \)680. FOB destination.

11 Sold merchandise inventory to Garrison Corporation, \(10,300, on account, terms of 3/10, n/EOM. Cost of goods, \)5,150. FOB shipping point.

12 Paid freight bill of \(30 on November 10 sale.

13 Sold merchandise inventory to Cain Company, \)9,000, on account, terms of 1/10, n/45. Cost of goods, \(4,500. FOB shipping point.

14 Paid the amount owed on account from November 4, less return and discount.

18 Purchased inventory of \)3,700 on account from Regan Corporation. Payment terms were 2/10, n/30, FOB destination.

20 Received cash from Garrison Corporation, less discount.

26 Paid amount owed on account from November 18, less discount.

28 Received cash from Cain Company.

29 Purchased inventory from Sanders Corporation for cash, \(12,000, FOB shipping point. Freight in paid to shipping company, \)200.

Camilia Communications reported the following figures from its adjusted trial balance for its first year of business, which ended on July 31, 2018:

Cash \( 2,900 Cost of Goods Sold \) 18,700

Selling Expenses 1,400 Equipment, net 9,500

Accounts Payable 4,300 Accrued Liabilities 1,800

Common Stock 4,365 Net Sales Revenue 29,200

Notes Payable, long-term 500 Accounts Receivable 3,200

Merchandise Inventory 1,100 Interest Expense 65

Administrative Expenses 3,300

Requirements

1. Prepare Camilia Communication鈥檚 statement of retained earnings for the year ended July 31, 2018. Assume that there were no dividends declared during the year and that the business began on August 1, 2017.

2. Prepare Camilia Communication鈥檚 classified balance sheet at July 31, 2018. Use the report format.

What are the two types of inventory accounting systems? Briefly describe each.

Howie Jewelers had the following purchase transactions. Journalize all necessary transactions. Explanations are not required.

Jun. 20 Purchased inventory of \(5,100 on account from Sanders Diamonds, a jewelry importer. Terms were 2/15, n/45, FOB shipping point.

20 Paid freight charges, \)400.

Jul. 4 Returned \(600 of inventory to Sanders.

14 Paid Sanders Diamonds, less return.

16 Purchased inventory of \)3,500 on account from Southboro Diamonds, a jewelry importer. Terms were 2/10, n/EOM, FOB destination.

18 Received a $300 allowance from Southboro Diamonds for damaged but usable goods.

24 Paid Southboro Diamonds, less allowance, and discount.
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