During 2016, its first year of operations, Hollis Industries recorded sales of $

Question

During 2016, its first year of operations, Hollis Industries recorded sales of $10,600,000 and experienced returns of $860,000. Cost of goods sold totaled $7,950,000 (75% of sales). The company estimates that 10% 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. (If no entry is required for a particular event, select "No journal entry required" in the first account field.)

During 2016, its first year of operations, Hollis Industries recorded sales of $10,600,000 and experienced returns of $860,000. Cost of goods sold totaled $7,950,000 (75% of sales). The company estimates that 10% 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. (If no entry is required for a particular event, select "No journal entry required" in the first account field.)

Explanation / Answer

Note :

1. Sales Returns = 10% of all sales

= 10%* $10,600,000

= $ 1,060,000

Less: Returns Experienced = $ 860,000

Hence Sales Returns Adjusting Entry required = $ 200,000

2. Cost of Goods Sold = Sales *75%

= $ 200,000 *75%

= $ 150,000

Account Titles and Explanation Debit Credit Sales Returns 200,000 Allowance for Sales Returns 200,000 Inventory 150,000 Cost of Goods Sold 150,000

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