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25 November, 14:46

Stossel Company sells 300 units for $200 each to Liberty Inc. for cash. Stossel allows Liberty to return any unused product within 30 days and receive a full refund. The cost of each product is $120. Stossel estimates that ten units will be returned, the costs of recovering the units will be immaterial, and the returned units are expected to be resold at a profit. What amount of Sales Returns and Allowances should Stossel record in the year of the sale? (a) $2,000. (b) $0. (c) $800. (d) $1,200.

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  1. 25 November, 15:01
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    Option A.

    Explanation:

    The given information about the Stossel Company is

    Selling price per unit = $200

    Cost of each product = $120

    Estimated return = 10 units

    Sales Returns and Allowances = (Estimated return) x (Selling price per unit)

    Substitute the given values in the above formula.

    Sales Returns and Allowances = (10) x ($200)

    = $2,000

    The amount of Sales Returns and Allowances should Stossel record in the year of the sale is $2,000.

    Therefore, the correct option is A.
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