Question

N March 10, 2020, Sarasota Company sold to Barr Hardware 230 tool sets at a price of $54 each (cost $28 per set) with terms of n/60, f.o.b. shipping point. Sarasota allows Barr to return any unused tool sets within 60 days of purchase. Sarasota estimates that (1) 10 sets will be returned, (2) the cost of recovering the products will be immaterial, and (3) the returned tools sets can be resold at a profit. On March 25, 2020, Barr returned 6 tool sets and received a credit to its account.

Prepare journal entries for Sarasota to record (1) the sale on March 10, 2020, (2) the return on March 25, 2020, and (3) any adjusting entries required on March 31, 2020 (when Sarasota prepares financial statements). Sarasota believes the original estimate of returns is correct. (Credit account titles are automatically indented when the 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.)

Answer 1

Step-by-step explanation:

The journal entries are shown below:

1. Accounts receivable A/c Dr $10,800 (200 × $54)

To Service revenue A/c $10,800

(Being service provided is recorded)

Cost of goods sold A/c Dr $5,600 (200 × $28)

To Inventory A/c $5,600

(Being goods are recorded at cost price)

2. Sales return and allowance A/c Dr 324 (6 × $54)

To Accounts receivable $324

(Being sales return is recorded)

Returned inventory A/c Dr $168 (6 × $28)

To Cost of goods sold A/c $168

3. Sales return and allowance A/c Dr $216 (4 × $54)

To Allowance for Sales Returns and Allowances $216

(Being adjusted entry recorded)

Estimated inventory returned A/c Dr $112 (4 × $28)

To Cost of goods sold A/c $112

(Being adjusted entry recorded)

The 4 tool sets has come from 10 returned tool sets - 6 returned sets