Question

Smith and Sons Inc. is a sporting goods manufacturer. The firm uses a periodic inventory system. Smith and Sons shipped $30,000 of defective goods to a retailer. The retailer and Smith and SOns agreed that the retailer would keep the goods in exchange for a $3,000 allowance. The Cost ofthe goods was $1,500. What journal entries would Smith and Sons record?

A) Debit Accounts Receivable $30,000, Credit Sales $30,000
B) Debit Sales $30,000, Credit Accounts Receivable $30,000
C) Debit Sales Returns and Allowances $3,000, Credit Accounts Receivable $3,000
D) Debit Sales Returns and Allowances $3,000, Credit Inventory $1,500, Credit Accounts Receivable $1,500"

Answer 1

The correct journal entry for Smith and Sons Inc.'s allowance on defective goods is a debit to Sales Returns and Allowances and a credit to Accounts Receivable, both for the amount of $3,000. This entry reduces the revenue and accounts receivable by the allowance amount. The correct answer is option c.

Step-by-step explanation:

The student is inquiring about the correct journal entry for a transaction involving a sales return and allowance. Smith and Sons Inc., a sporting goods manufacturer, agreed to give a retailer a $3,000 allowance for defective goods, which were initially shipped for $30,000. The cost of the goods was $1,500. Based on the information provided, the correct journal entry that Smith and Sons would record for this transaction is:

• Debit Sales Returns and Allowances for $3,000
• Credit Accounts Receivable for $3,000

This entry acknowledges the reduction in revenue due to the allowance provided to the retailer and reduces the amount that the retailer owes Smith and Sons. Since the cost of goods sold was not asked for in the question and the transaction involves only the revenue side, the inventory account remains unchanged by this transaction.