Question

Assume the following data for Casper Company before its year-end adjustments:

Unadjusted Balances
Debit Credit
Sales $1,750,000
Cost of Merchandise Sold $1,000,000
Estimated Returns Inventory 600
Customer Refunds Payable 400
Estimated cost of merchandise that will be returned in the next year $8,000
Estimated percent of refunds for current year sales 0.6%
a. Journalize the adjusting entry for the estimated customer allowances.

Sales
Customer Refunds Payable
Feedback

b. Journalize the adjusting entry for the estimated customer returns.

Estimated Returns Inventory
Cost of Merchandise Sold

Answer 1

a. Journalize the adjusting entry for the estimated customer allowances.

• Dr Sales returns and allowances 10,500
• Cr Customer refunds payable 10,500

The adjusting entry should = total sales x estimated percent of returns = $1,750,000 x 0.6% = $10,500

b. Journalize the adjusting entry for the estimated customer returns.

• Dr Estimated returns inventory 8,000
• Cr Cost of merchandise sold 8,000

This amount is given in the question, $8,000, so you need to record it as a decrease in COGS and an increase in returns inventory.