Question

On July 10, 2020, Pronghorn Music sold CDs to retailers on account and recorded sales revenue of $635,000 (cost $508,000). Pronghorn grants the right to return CDs that do not sell in 3 months following delivery. Past experience indicates that the normal return rate is 15%. By October 11, 2020, retailers returned CDs to Pronghorn and were granted credit of $82,700.Prepare Pronghorn’s journal entries to record (a) the sale on July 10, 2020, and (b) $82,700 of returns on October 11, 2020, and on October 31, 2020. Assume that Pronghorn prepares financial statement on October 31, 2020. (

Answer 1

(a)

Dr Accounts Receivable $635,000

Cr 7/10/2020 Sales Revenue $635,000

Dr Cost of Goods Sold $508,000

Cr Inventory $508,000

(b)

Dr Sales Returns & Allowances $82,700

Cr 10/11/2020.Accounts Receivable $82,700

Dr Returned Inventory $66,160

Cr Cost of Goods Sold $66,160

10/31/2020 No entries are needed as the return period has expired.

Step-by-step explanation:

(a)

Dr Accounts Receivable $635,000

Cr 7/10/2020 Sales Revenue $635,000

Dr Cost of Goods Sold $508,000

Cr Inventory $508,000

(b)

Dr Sales Returns & Allowances $82,700

Cr 10/11/2020.Accounts Receivable $82,700

Dr Returned Inventory $66,160

Cr Cost of Goods Sold $66,160

($508,000 / $635,000) x $82,700= $66,160

10/31/2020 No entries are needed as the return period has expired.