Question

Customer refunds and returns Assume the following data for Alpine Technologies for the year ending July 31, 20Y2. Sales $900,000 Estimated percent of sales expected to be 1.5% refunded or issued an allowance in 20Y3 Estimated cost of inventory expected to be returned in 20Y3 $6,000 Indicate the effects of the adjustment for estimated customer refunds and returns on the liquidity metric working capital and profitability metric gross profit percent. Enter amounts that decrease net income as negative values. Round percentage values to 1 decimal place. Metric Effects Liquidity Profitability Transaction Working Capital Ability to Achieve Gross Profit Percent of 30% Decrease %) July 31 $ -7,500

Answer 1

Compute gross profit percent as follows

Particulars	Amount
Sales	($13,500)
Cost of goods sold	$6,000
Gross Profit	($7,500)
Gross profit Percent ($7,500 ÷ $13,500)	55.6%

Note: The effect of the transactions on accounting equation as follows

Particulars	Assets	=	Liabilities	+	Stockholders' Equity
	Estimated Returns Inventory	=	Customer Refunds Payable	+	Retained Earnings
Customer refunds		=	$13,500	+	($13,500)
Inventory returns	$6,000	=		+	$6,000
Total	$6,000	=	$13,500	+	($7,500)