On July 10, 2019, Yared Music sold CDs to retailers on account and recorded sales revenue of $700,000 (cost $560,000). Yared grants the right to return CDs that do not sell in 3 months following delivery. Past experience indicates that the normal return rate is 15%. By October 11, 2019, retailers returned CDs to Yared and were granted credit of $78,000. Prepare Yared journal entries to record (a) the sale on July 10, 2019, (b) $78,000 of returns on October 11, 2019, and (c) any entry necessary on October 31, 2019. Assume that Yared prepares financial statement on October 31, 2019

Question

16-02-2022
Advanced Placement (AP)

contestada

On July 10, 2019, Yared Music sold CDs to retailers on account and recorded sales revenue of $700,000 (cost $560,000). Yared grants the right to return CDs that do not sell in 3 months following delivery. Past experience indicates that the normal return rate is 15%. By October 11, 2019, retailers returned CDs to Yared and were granted credit of $78,000. Prepare Yared journal entries to record (a) the sale on July 10, 2019, (b) $78,000 of returns on October 11, 2019, and (c) any entry necessary on October 31, 2019. Assume that Yared prepares financial statement on October 31, 2019

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Tundexi Tundexi · Answer 1 · 2022-02-22T13:35:38+01:00

The appropriate journal entries to record the given transactions includes Debit to Accounts Receivable $700000; Credit to Refund Liability $105000 and Credit to Sales Revenue $595000.

a) Sales on July 10,2019

Debit Accounts Receivable $700000

Credit Refund Liability $105000 ($700,000 x .15)

Credit Sales Revenue $595000 [(100%-15%)×$700000]

Debit Cost of Goods Sold $476000 [(100%-15%)×$560000]

Debit Estimated Inventory Returns $84000 ($560,000 x .15)

Credit Inventory $560000

b. Return on October 11, 2019

Debit Refund Liability $78000

Credit Accounts Receivable $78000

Debit Returned Inventory $62400

Credit Estimated Inventory Return $62400

[($560,000/$700,000)×$78,000]

c. 10/31/2019

No journal entries are needed as the return period has expired.

In conclusion, the appropriate journal entries to record the given transactions includes Debit to Accounts Receivable $700000; Credit to Refund Liability $105000 and Credit to Sales Revenue $595000.