During 2021, its first year of operations, Hollis Industries recorded sales of $10,600,000 and experienced returns of $720,000. Cost of goods sold totaled $6,360,000 (60% of sales). The company estimates that 8% of all sales will be returned. Prepare the year-end adjusting journal entries to account for anticipated sales returns, assuming that all sales are made on credit and all accounts receivable are outstanding.

Question

Finn Perkins

Business

9 April, 18:10

During 2021, its first year of operations, Hollis Industries recorded sales of $10,600,000 and experienced returns of $720,000. Cost of goods sold totaled $6,360,000 (60% of sales). The company estimates that 8% of all sales will be returned. Prepare the year-end adjusting journal entries to account for anticipated sales returns, assuming that all sales are made on credit and all accounts receivable are outstanding.

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Kamora Mcbride · Answer 1

The journal entries are shown below:

1. Sales revenue A/c Dr $128,000

To Sales return and Allowances $128,000

(Being return sales is recorded)

The computation is shown below:

= Recorded sales * estimated returned percentage - experienced returns

= $10,600,000 * 8% - $720,000

= $848,000 - $720,000

= $128,000

2. Inventory A/c Dr $76,800 ($128,000 * 60%)

To Cost of goods sold $76,800

(Being returned cost of goods sold recorded)