Question

Zell Company had sales of $1,800,000 and related cost of merchandise sold of $1,150,000 for its first year of operations ending December 31, 20Y3. Zell Company provides customers refunds and allowances for any damaged merchandise. At the end of the year, Zell Company estimates that customers will request refunds and allowances for 1.5% of sales. Assume that on February 3, 20Y4, Zell Company paid a customer a $5,000 cash refund for damaged merchandise. Required: (a) Journalize the adjusting entry on December 31, 20Y3, to record the expected customer refunds and allowances\.\* (b) Journalize the entry to record the cash refund\.\* *Refer to the chart of accounts for the exact wording of the account titles. CNOW journals do not use lines for journal explanations. Every line on a journal page is used for debit or credit entries. CNOW journals will automatically indent a credit entry when a credit amount is entered.

Answer 1

For Zell Company's expected refunds and allowances, an adjusting entry is made debiting Refunds and Allowances Expense and crediting Refunds and Allowances Payable for $27,000. For the cash refund, the entry debits Refunds and Allowances Payable and credits Cash for $5,000. The firm's accounting profit from the self-check question is $50,000.

Step-by-step explanation:

To answer the student's question regarding the accounting entries for Zell Company, part (a) and (b) can be addressed as follows:

(a) Adjusting Entry on December 31, 20Y3:

Debit: Refunds and Allowances Expense: $1,800,000 x 1.5% = $27,000

Credit: Refunds and Allowances Payable: $27,000

The journal entry would be:

Refunds and Allowances Expense 27,000

Refunds and Allowances Payable 27,000

(b) Entry to Record the Cash Refund on February 3, 20Y4:

Debit: Refunds and Allowances Payable: $5,000

Credit: Cash: $5,000

The journal entry would be:

Refunds and Allowances Payable 5,000

Cash 5,000

For the self-check question, the firm's accounting profit can be calculated as follows:

Sales revenue: $1,000,000

Total expenses (Labor + Capital + Materials): $600,000 + $150,000 + $200,000 = $950,000

Accounting profit: Sales revenue - Total expenses = $1,000,000 - $950,000 = $50,000

The firm's accounting profit is $50,000.

Answer 2

a). Date Description Debit($) Credit($)

31st Dec 20Y3 Sales 27,000

(1,800,000 x 1.5%)

Customer refunds payable 27,000

Estimated sales return 16,000

inventory

Cost of merchandise sold 16,000

b). Date Description Debit($) Credit($)

3 Feb, 20Y4 Customer refund payable 5000

Cash 5000

Merchandise inventory 3100

Estimated return inventory 3100