Scott Company had sales of $12,350,000 and related cost of goods sold of $7,500,000 for the year ending December 31, 20Y8. Scott provides customers a refund for any returned or damaged merchandise. Scott Company estimates that customers will request refunds for 0.8% of sales and estimates that merchandise costing $48,000 will be returned in 20Y9. Journalize the adjusting entries on December 31, 20Y8, to record the expected customer returns. If an amount box does not require an entry, leave it blank.

Entries to record the expected customer returns:

J1

Trade Receivables $12,350,000 (debit)

Revenue $2,470,000 (credit)

Refund Liability $9,880,000 (credit)

Being Recognition of Revenue from Sale and Refund Liability.

J3

Right of Recovery Asset $48,000 (debit)

Cost of Sales $48,000 (credit)

Being Reduction of the Cost of Sales with Right of Return Items

Explanation:

The full Entries to be made on the Sale transaction are as follows:

J1

Trade Receivables $12,350,000 (debit)

Revenue $2,470,000 (credit)

Refund Liability $9,880,000 (credit)

Being Recognition of Revenue from Sale and Refund Liability.

J2

Cost of Sales $7,500,000 (debit)

Inventory $7,500,000 (credit)

Being Recognition of Cost associated with the sale

J3

Right of Recovery Asset $48,000 (debit)

Cost of Sales $48,000 (credit)

Being Reduction of the Cost of Sales with Right of Return Items