Question

D) $1,257 For the year ended December 31, 2019, Davidson Mart had sales of $800,000 and cost of goods sold of $600.000. Davidson estimates that approximately 2% of the merchandise sold will be returned. The adjusting journal entry on December 31, 2019, would include a A) debit to Cost of Goods Sold for $12,000 B) credit to Estimated Returns Inventory for $12,000 C) debit to Sales Revenue for $4,000 D) credit to Refunds Payable for $16,000

Answer 1

The entries for sales returns are:

1.	Sales Returns Dr	16000
	To Refund Liability (800,000*2%)		16000
2.	Inventory - Estimated Returns a/c Dr	12000
	To Cost of Goods sold (600,000*2%)		12000

A. Cost of goods sold $ 12000 is credited. Hence this option is incorrect.

B. Estimated Returns Inventory is $ 12000 is debited, not credited. Hence incorrect.

C. Sales Revenue is debited by $ 16000. Not 4000. Hence incorrect.

D. Credit to Refunds payable $ 16000 is correct.