On March 10, 2017, Steele Company sold to Barr Hardware 200 tool sets at a price

Question

On March 10, 2017, Steele Company sold to Barr Hardware 200 tool sets at a price of $50 each (cost $30 per set) with terms of n/60, f.o.b. shipping point. Steele allows Barr to return any unused tool sets within 60 days of purchase. Steele estimates that (1) 10 sets will be returned, (2) the cost of recovering the products will be immaterial, and (3) the returned tools sets can be resold at a profit. On March 25, 2017, Barr returned six tool sets and received a credit to its account. Assume that instead of selling the tool sets on credit, that Steele sold them for cash.
Instructions
(a)  
Prepare journal entries for Steele to record (1) the sale on March 10, 2017, (2) the return on March 25, 2017, and (c) any adjusting entries required on March 31, 2017 (when Steele prepares financial statements). Steele believes the original estimate of returns is correct.

(b)  
Indicate the income statement and balance sheet reporting by Steele at March 31, 2017, of the information related to the Barr sale.

Explanation / Answer

a)

b)

Steele

Income statement (Partial)

for the period ended march 31 2017

Balance sheet(Partial)

as on 31 march 2017

Date Account Debit credit March 10 2017 Accounts receivable [200*50] 10000 sales revenue 10000 [Sales made on account] cost of goods sold 6000 merchandise inventory [30*200] 6000 [being cost of sales recorded] 25 march 2017 sales returns and allowance [6* 50] 300 Accounts receivable 300 merchandise inventory 180 cost of goods sold [30*6] 180 march 31 2017 sales returns and allowance [4*50] 200 Accounts receivable 200 Estimated inventory returns [4*30] 120 cost of goods sold 120 [to record the remaining estimated returns 10-6 =4]

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