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, 2016. Zell Company provides customers a refund for any returned or damaged merchandise. At the end of the year, Zell Company estimates that customers will request refunds for 1.5% of sales and estimates that merchandise costing $16,000 will be returned. Assume that on February 3, 2017 Anderson Co. returned merchandise with a selling price of $5,000 for a cash refund. The returned merchandise originally cost Zell Company $3,100.
Required:
(a) Journalize the adjusting entries on December 31, 2016 to record the expected customer returns.*
(b) Journalize the entries to record the returned merchandise and cash refund to Anderson Co.*
(a) Journalize the adjusting entries on December 31, 2016 to record the expected customer returns. Refer to the Chart of Accounts for exact wording of account titles. Scroll down to see the journal page for recording the returned merchandise and cash refund to Anderson Co.
(b) Journalize the entries to record the returned merchandise and cash refund to Anderson Co. Refer to the Chart of Accounts for exact wording of account titles.
Disregard the charts of accounts. I know which account titles to use just need help with the numbers part. Which number do I debit and which do I credit.
I had put 55000 for letter a and was told I was incorrect
I figured out a just need bnow
(a) The adjusting entry to record the expected customer returns on December 31, 2016 would be as follows:
Date: December 31, 2016
Account Debit Credit
Estimated Returns Expense 27,000
Allowance for Customer Returns 27,000
Explanation: The estimated customer returns are calculated by multiplying the sales ($1,800,000) by the estimated return rate (1.5%). Therefore, the estimated returns expense is $1,800,000 x 1.5% = $27,000. At the same time, an allowance for customer returns is created to account for the expected returns.
(b) The journal entry to record the returned merchandise and cash refund to Anderson Co. on February 3, 2017 would be as follows:
Date: February 3, 2017
Account Debit Credit
Accounts Payable - Anderson Co. 5,000
Sales Returns and Allowances 5,000
Explanation: The returned merchandise is recorded as a reduction in sales revenue under the account Sales Returns and Allowances. The Accounts Payable - Anderson Co. account is credited to reflect the cancellation of the original sale.
To answer this question, you need to understand that adjusting entries are made at the end of an accounting period to update certain accounts and reflect events that occurred during the period. In this case, we need to journalize the adjusting entries on December 31, 2016, to record the expected customer returns and then journalize the entries to record the returned merchandise and cash refund to Anderson Co.
(a) To journalize the adjusting entries for the expected customer returns, we need to calculate the estimated dollar amount of customer returns and the estimated dollar amount of merchandise to be returned.
1. Calculate the estimated dollar amount of customer returns:
Sales = $1,800,000
Estimated customer returns = 1.5% of sales
Estimated customer returns = 1.5% * $1,800,000
Estimated customer returns = $27,000
2. Calculate the estimated dollar amount of merchandise to be returned:
Cost of merchandise sold = $1,150,000
Estimated merchandise returns = $16,000
Now, journalize the adjusting entries:
Date Account Debit Credit
------------------------------------------------------------------
Dec 31, 2016 Sales Returns $27,000
Estimated Customer Returns $27,000
Dec 31, 2016 Sales Returns $16,000
Estimated Merchandise Returns $16,000
(b) To journalize the entries for the returned merchandise and cash refund to Anderson Co., we need to record the returned merchandise at its selling price and the cost of merchandise returned.
Date Account Debit Credit
------------------------------------------------------------------
Feb 3, 2017 Accounts Receivable $5,000
Sales Returns $5,000
(To record the returned merchandise)
Feb 3, 2017 Sales Returns $3,100
Inventory $3,100
(To record the cost of returned merchandise)
Feb 3, 2017 Cash $5,000
Accounts Receivable $5,000
(To record the cash refund to Anderson Co.)
Note: It's important to refer to the Chart of Accounts for the exact wording of the account titles used in your specific accounting system.