Question

Sale of Custom Merchandise Custom Wares is a public company that sells custom merchandise, including engraved picture frames. On December 15, the company received a purchase order and payment from a customer (Jim Burke) for the purchase of 200 custom frames. The frames will be used as a wedding favor and engraved "Jim and Jess, 2020." On December 30, Custom Wares shipped the completed order to Mr. Burke, and Mr. Burke received the frames via UPS on January 2. Company policy allows customers to return merchandise within 30 days for a full refund if they are not to the customer's satisfaction. Historically, Custom Wares has experienced product return rates of 2%. The frames sell for $25 each and cost the company approximately $ 10 each. Custom Wares must determine whether it can recognize the revenue from the sale, when, and in what amount. For example, should Custom Wares wait until the 30-day return window lapses? Citing guidance from the Codification as support, attempt the journal entries that Custom Wares should record at the time of order, at the time of customer receipt, and-if applicable-upon expiration of the return window.

Answer 1

custom wares should record revenue at the time of recipt.

So Journal Entries for Custom Wares are as under :-

(1) at the time of only order :-

Do not create a journal entry when you receive only order from customer.

(2) at the time of customer receipt :-

cash/ bank  account dr $5000

to jim burke account $5000.

( to record advance received from customer against order.)

(3) at the time of expiration of the return window.

cash account dr $5000

refund libility $100

sales revenue $4900.

(to record sales return & revenue )

cost of goods sold account dr $1960

to inventory account $1960.

(to record cost of goods sold).

So cutom wares should record above mentionted journal entries for whole transation. also should record sales revenue as above.