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, 20Y3. Zell Company provides customers refunds and allowances for any damaged merchandise. At the end of the year, Zell Company estimates that customers will request refunds and allowances for 1.5% of sales. Assume that on February 3, 20Y4, Zell Company paid a customer a $5,000 cash refund for damaged merchandise. Required: (a) Journalize the adjusting entry on December 31, 20Y3, to record the expected customer refunds and allowances\.\* (b) Journalize the entry to record the cash refund\.\* *Refer to the chart of accounts for the exact wording of the account titles. CNOW journals do not use lines for journal explanations. Every line on a journal page is used for debit or credit entries. CNOW journals will automatically indent a credit entry when a credit amount is entered.

Answer 1

Solution :

a).      Date                 Description                       Debit($)                   Credit($)

  31st Dec 20Y3           Sales                              27,000

                              (1,800,000 x 1.5%)        

                             Customer refunds payable                                    27,000    

                             

                             Estimated sales return           16,000

                              inventory

                           Cost of merchandise sold                                        16,000

b).     Date                 Description                       Debit($)                   Credit($)

  3 Feb, 20Y4   Customer refund payable        5000

                          Cash                                                                           5000

                         Merchandise inventory              3100

                        Estimated return inventory                                        3100