Question

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.

(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.

Answer 1

Answer:

Explanation:

(a) year ended December 31, 2016

1) Entries that have been made at the time of sale

Cash/Bank           1800000

            Sales                              1800000

To record the revenue As per IFRS-15

2)

Cost of sales        1150000

          Inventory         1150000

To record the cost of sales

3)

Sales             1.50% 27000

             Provision for refund liability   27000

To record the provision for refund laibility

4)

Right of return Asset           16000

                Cost of goods sold            16000

To record the cost of inventory against the refund of sales.

(b)  entries to record the returned merchandise and cash refund to Anderson Co.

Provision for Refund liability        5000

                 Cash                                                 5000                                  

To record the actual return of sales

Inventory      3100

   Right of return Asset    3100

To record the inventory returned against the return of sales