Question

For the year ended December​ 31, 2019, Davidson Mart had sales of​ $800,000 and cost of goods sold of​ $600,000. Davidson estimates that approximately​ 2% of the merchandise sold will be returned. The adjusting journal entry on December​ 31, 2019, would include ____

A) credit to Refunds Payable for $40,000
B) debit to Cost of Goods Sold for $30,000
C) debit to Sales Revenue for $10,000
D) credit to Estimated Returns Inventory for $ 30000

Answer 1

A) credit to Refunds Payable for $40,000

Step-by-step explanation:

ed merchandise will increase our inventory and lower the cost of goods sold.

Also, it will decrease our net sales.

However, it is important to notice we are doing a provision, the returned didn't occur yet.

800,000 x 2% = 40,000 expected refund

sales returns and allowance 40,000

refund liability 40,000

When the customer returns good we will do:

refund liability debit

cash credit

when the goods were already paid

or

refund liability debit

account receivable credit

when not paid, and simply deducted from the customer accounts.