Question

During 2018, 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 under the assumption that all sales are made for cash (no accounts receivable are outstanding). (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Answer 1

Dr Revenue $720,000

Dr Inventory $432,000

Cr Cost of sales $432,000

Cr Liability $720,000

Step-by-step explanation:

To record the goods that were returned (60% of sales) = 60% * 720,000 = $432,000

Dr Inventory $432,000

Cr Cost of sales $432,000

To adjust revenue for the sales, if cash was returned to the customer when the goods were returned

Dr Revenue $720,000

Cr Cash $720,000

If cash was not returned to the customer

Dr Revenue

Cr Liability( Deferred Revenue/Payable to customer)