Question

At the end of its first year of operations, Loring Industries estimates that sales returns in the amount of $20,000 will occur during Year 2. The cost of the inventory expected to be returned is $12,000. All of Loring’s sales are made for cash and the company uses a perpetual inventory system. Assume that no returns have occurred as of the end of Year 1. Prepare the appropriate adjusting journal entry to record the expected sales returns and the inventory expected to be returned in Year 2.

Answer 1

Answer: See explanation

Step-by-step explanation:

The appropriate adjusting journal entry to record the expected sales returns will be:

Debit: Sales return = $20,000

Credit: Refund liabilities = $20,000

(For expected sales return).

The appropriate adjusting journal entry to record the inventory expected to be returned in Year 2 will be:

Debit: Inventory-Sales Return = $12000

Credit: Cost of goods sold = $12000