On October 2, 2017, Ayayai Company sold $5,740 of its elite camping gear (with a
ID: 2591149 • Letter: O
Question
On October 2, 2017, Ayayai Company sold $5,740 of its elite camping gear (with a cost of $3,450) to Lynch Outfitters on credit. As part of the sales agreement, Ayayai includes a provision that if Lynch is dissatisfied with the product, Ayayai will grant an allowance on the sales price or agree to take the product back (although returns are rare, given the long-term relationship between Ayayai and Lynch). Ayayai expects total allowances to Lynch to be $830. On October 16, 2017, Ayayai grants an allowance of $420 to Lynch because the color for some of the items delivered was a bit different than what appeared in the catalog.
Prepare journal entries for Ayayai to record (1) the sale on October 2, 2017, (2) the granting of the allowance on October 16, 2017, and, (3) any adjusting required on October 31, 2017 (when Ayayai prepares financial statements). Ayayai now estimates additional allowances of $240 will be granted to Lynch in the future. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No entry" for the account titles and enter 0 for the amounts.)
On October 2, 2017, Ayayai Company sold $5,740 of its elite camping gear (with a cost of $3,450) to Lynch Outfitters on credit. As part of the sales agreement, Ayayai includes a provision that if Lynch is dissatisfied with the product, Ayayai will grant an allowance on the sales price or agree to take the product back (although returns are rare, given the long-term relationship between Ayayai and Lynch). Ayayai expects total allowances to Lynch to be $830. On October 16, 2017, Ayayai grants an allowance of $420 to Lynch because the color for some of the items delivered was a bit different than what appeared in the catalog.
Explanation / Answer
Date Accounts Titles & Explanation Debit Credit
(1) Oct. 2 Accounts Receivable $5,740
Sales Revenue $5,740
Cost of Goods Sold $3,450
Inventory $3,450
(2) Oct. 16 Sales Returns and Allowances $420
Accounts Receivable $420
(3) Oct. 31 Sales Returns and Allowances $240
Allowance for Sales Returns and Allowances $240
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