Question:
During 2013, its first year of operations, Hollis Industries recorded sales of $10,600,000 and experienced
returns of $720,000. Cost of goods sold totaled $6,360,000 (60% of sales). The company estimates that
8% of all sales will be returned. Prepare the year-end adjusting journal entries to account for anticipated
sales returns.
Answer:
Estimated returns = $10,600,000 x 8% = $848,000
Less: Actual returns (720,000)
Remaining estimated returns $128,000
Sales returns.......................................................................................... 128,000
Allowance for sales returns ............................................................. 128,000
Inventory—estimated returns ............................................................... 76,800
Cost of goods sold ($128,000 x 60%) .............................................. 76,800
During 2013, its first year of operations, Hollis Industries recorded sales of $10,600,000 and experienced
returns of $720,000. Cost of goods sold totaled $6,360,000 (60% of sales). The company estimates that
8% of all sales will be returned. Prepare the year-end adjusting journal entries to account for anticipated
sales returns.
Answer:
Estimated returns = $10,600,000 x 8% = $848,000
Less: Actual returns (720,000)
Remaining estimated returns $128,000
Sales returns.......................................................................................... 128,000
Allowance for sales returns ............................................................. 128,000
Inventory—estimated returns ............................................................... 76,800
Cost of goods sold ($128,000 x 60%) .............................................. 76,800
