Question

On March 10, 2017, Steele Company sold to Barr Hardware 200 tool sets at a price of $50 each (cost $30 per set) with terms of n/60, f.o.b. shipping point. Steele allows Barr to return any unused tool sets within 60 days of purchase. Steele 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, 2017, Barr returned 6 tool sets and received a credit to its account.

Prepare journal entries for Steele to record (1) the sale on March 10, 2017, (2) the return on March 25, 2017, and (3) any adjusting entries required on March 31, 2017 (when Steele prepares financial statements). Steele 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

Date Account Titles Debit Credit

March, 10 Accounts Receivables $10,000

Sales Revenue $10,000

Cost of Good sold $6,000

Inventory $6,000

Working

Receivables = 200 tool sets * 50 = $10,000

COGS = 200 * 30 = $6,000

Date Account Titles Debit Credit

March, 25 Sales Returns and Allowances $300

Accounts Receivable $300

Returned Inventory $180

Cost of Goods sold $180

Working:

Sales returns = 6 * 50 = $300

Cost of goods = 6 * 30 = $180

Estimated that 10 sets would be returned but only 6 were.

Date Account Titles Debit Credit

March, 25 Sales Returns and Allowances $200

Allowance for Sales Returns $200

and Allowances

Returned Inventory $120

Cost of goods sold $120

Working:

Sales returns = 4 * 50 = $200

COGS = 4 * 30 = $120