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Chapter 5: Q5-15RQ (page 294)

Under the new revenue recognition standard, what most companies do at the end of the period related to sales returns? Describe the journal entries that would be recorded.

Short Answer

Expert verified

As per the newrevenue recognition standard, the companies must compute the net amount at the end of the period related to sales returns and estimate therefunds payable balances.

Step by step solution

01

Meaning of Sales Returns

In accounting, sales returns refer to thegoods returned by the buyer to the seller due to any damages, defects, or any other issue. Such returns decrease thesales revenues of thebusiness concern.

02

Companies’ responsibility at the end of the period

At the end of the accounting period, companies must compute thenet amount after the settlement of all the applicable discounts.

In addition, as per the new revenue recognition standard,refunds payable are required to be estimated and recorded.

03

Journal entries required

Date

Accounts and Explanation

Debit ($)

Credit ($)

Sales revenue

XXX

Refunds payable

XXX

(To record the refunds payable)

Estimated returned inventory

XXX

Cost of goods sold

XXX

(To record the cost of goods sold)

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Most popular questions from this chapter

Crazy Cookies earned net sales revenue of \(66,000,000 in 2018. The cost of goods sold was \)39,600,000, and net income reached $7,000,000, the company’s highest ever. Compute the company’s gross profit percentage for 2018.

What is a merchandiser, and what is the name of the merchandise that it sells?

The unadjusted trial balance for Trudel Electronics Company at March 31, 2018, follows:

TRUDEL ELECTRONICS COMPANY

Unadjusted Trial Balance

March 31, 2018

Balance

Account Title Debit Credit

Cash \(4,000

Accounts Receivable 38,800

Merchandise Inventory 45,500

Office Supplies 6,500

Equipment 130,000

Accumulated Depreciation-Equipment \)36,800

Accounts Payable 17,400

Unearned revenue 13,200

Notes Payable, long-term 48,000

Common Stock 60,000

Retained Earnings 100

Dividends 20,000

Sales Revenue 282,500

Cost of Goods Sold 160,600

Salaries Expense (Selling) 20,000

Rent Expense (Selling) 15,800

Salaries Expenses (Administrative) 5,700

Utilities Expenses (Administrative) 11,100

Total \(458,000 \)458,000

Requirements

1. Journalize the adjusting entries using the following data:

a. Interest revenue accrued, \(200.

b. Salaries (Selling) accrued, \)2,300.

c. Depreciation Expense—Equipment (Administrative), \(1,300.

d. Interest expense accrued, \)1,500.

e. A physical count of inventory was completed. The ending Merchandise Inventory should have a balance of \(45,200.

f. Trudel estimates that approximately \)6,000 of merchandise sold will be returned with a cost of $1,200.

2. Prepare Trudel Electronics’s adjusted trial balance as of March 31, 2018.

3. Prepare Trudel Electronics’s multi-step income statement for year ended March 31, 2018.

Rocky RV Center’s accounting records include the following accounts at December 31, 2018.

Cost of Goods Sold \( 372,000 Accumulated Depreciation—Building \) 38,000

Accounts Payable 16,000 Cash 47,000

Rent Expense 26,000 Sales Revenue 636,500

Building 113,000 Depreciation Expense—Building 13,000

Common Stock 115,000 Dividends 58,000

Retained Earnings 83,100 Interest Revenue 14,000

Merchandise Inventory 239,600

Notes Receivable 34,000

Requirements

1. Journalize the required closing entries for Rocky.

2. Determine the ending balance in the Retained Earnings account.

What account is debited when recording the payment of freight when using the periodic inventory system?
See all solutions

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