Chico Company allows its customers to return merchandise within 30 days of purchase. ∙ At December 31, the end of its first year of operations, Chico estimates future-period merchandise returns of $60,000 (cost of $22,500) related to its current-year sales. ∙ A few days later, on January 3, a customer returns merchandise with a selling price of $2,000 for a cash refund; the returned merchandise cost $750 and is returned to inventory as it is not defective. a. Prepare the December 31 year-end adjusting journal entry for estimated future sales returns and allowances (revenue side). b. Prepare the December 31 year-end adjusting journal entry for estimated future inventory returns and allowances (cost side). c. Prepare the January 3 journal entries to record the merchandise returned.
Chico Company allows its customers to return merchandise within 30 days of purchase.
∙ At December 31, the end of its first year of operations, Chico estimates future-period merchandise
returns of $60,000 (cost of $22,500) related to its current-year sales.
∙ A few days later, on January 3, a customer returns merchandise with a selling price of $2,000 for a cash
refund; the returned merchandise cost $750 and is returned to inventory as it is not defective.
a. Prepare the December 31 year-end
(revenue side).
b. Prepare the December 31 year-end adjusting journal entry for estimated future inventory returns and
allowances (cost side).
c. Prepare the January 3 journal entries to record the merchandise returned.
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