Question

Instructions 

Zell Company had sales of $1,800,000 and related cost of merchandise sold of $1,150,000 for its first year of operations ending December 31, 2019. Zell Company provides customers a refund for any returned or damaged merchandise. At the end of the year, Zel Company estimates that customers will request refunds and allowances for 1.5% of sales and estimates that merchandise costing $16,000 will be returned. Assume that on February 3, 2020, Anderson Co. returned merchandise with a selling price of $5,000 for a cash refund. The returned merchandise originally cost Zell Company $3,100 

Required: 

(a) Journalize the adjusting entries on December 31, 2019 to record the expected customer returns 

(b) Journalize the entries to record the returned merchandise and cash refund to Anderson Co 

   "Refer to the Chart of Accounts for exact wording of accounts

Answer 1

Journal Entry-Zell Company
S. No.	Date	Accoutn Tittle	Debit	Credit
a)	31-Dec-2019	Sales (1,800,000*1.5%)	$27,000.00
		Refunds Payable to Customer		$27,000.00
		Estimated Returns Inventory	$16,000.00
		Cost Of Merchandise Sold		$16,000.00
b)	3-Feb-2020	Refunds Payable to Customer	$5,000.00
		Cash		$5,000.00
		Merchandise Inventory	$3,100.00
		Estimated Returns Inventory		$3,100.00

Answer 2

(1) sales is a activity of selling merchandise to customer it is a revenue.

so when there is a return, sales will be reduced by $1,800,000*1.5% = $27,000

cost of estimated return = $16,000 so we will reduce the cost of good sold by crediting it.

		debit	credit
Dec 31	Sales	$27,000
	customer refunds payable		$27,000
	estimated returns inventory	$16,000
	cost of goods sold		$16,000

(2) we will refund cash $5,000 to Buck co. it will decrease cash so we will credit cash

and increase inventory received back of $3,100 by debiting inventory and crediting estimated returns inventory.

		debit	credit
Feb 3	Customer refunds payable	$5,000
	Cash		$5,000
	Merchandise Inventory	$3,100
	estimated returns inventory		$3,100