Question

For the year ended December​ 31, 2019, Davidson Mart had sales of $300,000 and cost of goods sold of $225,000.Davidson estimates that approximately 33​%of the merchandise sold will be returned. The adjusting journal entry on December​ 31, 2019, would include a​ _______.

A.) D. Debit to Sales Revenue for $2,250.

B.) A. Debit to Costs of Goods sold for $6,750

C.) B. Credit to Refunds Payable for $9,000

D.) C. Credit to Estimated Returns inventory for $6,750

Answer 1

Question. For the year ended December 31, 2019, Davidson Mart had sales of $300,000 and cost of goods sold of $225,000.Davidson estimates that approximately 3.3%of the merchandise sold will be returned. The adjusting journal entry on December 31, 2019, would include a A.) D. Debit to Sales Revenue for $2,250. B.) A. Debit to Costs of Goods sold for $6,750 C.) B. Credit to Refunds Payable for $9,000 D.) C. Credit to Estimated Returns inventory for $6.750 Answer. C.) B. Credit to Refunds Payable for $ 9,000 Explanation. Since, the merchandise sold will be likely to return. It will be obligation to the company to pay the amount when it is returned. If the actual returns have taken place by the end of the Year, it would have credited to the Estimated Returns Inventory. Since, it is only a contingent liability, we will "Credit to Refunds Payable Account"