Question

During 2021, its first year of operations, Hollis Industries recorded sales of $10,100,000 and experienced returns of $700,000. Cost of goods sold totaled $7,070,000 (70% of sales). The company estimates that 8% of all sales will be returned.

Prepare the year-end adjusting journal entries to account for anticipated sales returns under the assumption that all sales are made for cash (no accounts receivable are outstanding). (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) 

Record estimated return of inventory.

Answer 1

1	Sales returns and allowances	108,000
	Refund liability		108,000
	(10,100,000*8%) - 700,000
2	Inventory estimated returns	75,600
	Cost of Goods Sold		75,600
	(108,000*70%)