ProBuilder reports merchandise sales of $80,000 and cost of merchandise sales of $20,000 in its first year of operations ending June 30, 2016. It makes fiscal-year-end adjusting entries for estimated future returns and allowances equal to 3% of sales, or $2,400, and 3% of cost of sales, or $600. Required:a. Prepare the June 30, 2016, fiscal-year-end adjusting journal entry for future returns and allowances related to sales. b. Prepare the June 30, 2016, fiscal-year-end adjusting journal entry for future returns and allowances related to cost of sales.

Answer and Explanation:

The adjusting entries are as follows:

1. Sales returns and allowances $2,400

To Sales refund payable $2,400

(Being the returns and allowance is recorded)

For recording this we debited the sales returns as it increased the sales return and credited the sales refund payable as it increased the liabilities

2. Inventory returns estimated $600

To Cost of goods sold $600

(Being the cost of sales is recorded)

For recording this we debited the inventory returns as it increased the returns inventory and credited the cost of goods sold as it decrease the expenses