Question

Crane Publishing Co. publishes college textbooks that are sold to bookstores on the following terms. Each title has a fixed wholesale price, terms f.o.b. shipping point, and payment is due 60 days after shipment. The retailer may return a maximum of 30% of an order at the retailer's expense. Sales are made only to retailers who have good credit ratings. Past experience indicates that the normal return rate is 12%. The costs of recovery are expected to be immaterial, and the textbooks are expected to be resold at a profit. On July 1, 2020, Crane shipped books invoiced at $15,000,000 (cost $12,000,000). Prepare the journal entry to record this transaction. (Credit account titles are automatically indented when amount is entered. Do not indent manually.If no entry is required, select "No entry" for the account titles and enter for the amounts.) On October 3, 2020, $1,500,000 of the invoiced July sales were returned according to the return policy, and the remaining $13,500,000 was paid. Prepare the journal entries for the return and payment. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No entry" for the account titles and enter for the amounts.) Assume Crane prepares financial statements on October 31, 2020, the close of the fiscal year. No other returns are anticipated. Indicate the amounts reported on the income statement and balance related to the above transactions. (If answer is 0, please enter 0. Do not leave any fields blank.) Income Statement (partial) Balance Sheet (partial)

Answer 1

Answer:

1

Date	Description	Debit $	Credit $
Jul-01	Account receivable	15000000
	Sales		15000000
	(To record the entry for sales)
	Cost of goods sold	12000000
	Inventory		12000000
	(To record the entry for cost of goods)

2

Date	Description	Debit $	Credit $
Oct-3-2017	Sales Return and Allowances	1500000
	Accounts Receivable		1500000
	(To record the entry for return of sales)
	Inventory	1200000
	Cost of goods sold		1200000
	(12,000,000*1,500,000/15,000,000)
	(To record the entry for cost of goods returned)
	Cash	13500000
	Accounts Receivable		13500000
	To record the entry for payment received)

3

Income Statement(Partial)
For the year ended October 31,2020
Sales	15000000
Less: Sales Return and Allowances	-1500000
Net sales	13500000
Cost of goods Sold(12,000,000-1,200,000)	10800000
Gross Profit	24300000

4

Balance Sheet(Partial)
October 31,2020
Accounts Receivable	0
Inventory	1200000