Question

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Question 1 Fox Stores, Inc. had sales of $1,000,000 during December, Year 9. Experience has shown that merchandise equaling 7% of sales will be returned within 30 days and an additional 3% will be returned within 90 days. The sales for Year 10 and Year 11 are $1,000,000 and $2,000,000, respectively. What amount should Fox report for net sales in its income statement for the month of December, Year 9?

Answer 1

Sales during December, year 9 - $ 1,000,000

Return within 30 days - 7%

Additional return within 90 days - 3%

Since, the returns of 7% and 3% have historically happened, Fox should consider the impact of these returns in estimating the Net Sales while reporting its Income statement for the month of December, year 9.

Thus, % total returned within 90 days = 10% (7% + 3%)

Sales returned value = $1,000,000 * 10% = $100,000

Thus, net sales to be reported = Sales (Gross) - Sales Returned = $1,000,000 - $100,000 = $900,000.

The information of sales in year 10 and year 11 are not relevant for this question.