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Adjusting entry for customer refunds, allowances, and returns Statz Company had sales of $1,800,000 and related cost of goods

Adjusting entry for customer refunds, allowances, and returns 


Statz Company had sales of $1,800,000 and related cost of goods sold of $1,050,000 for its first year of operations ending December 31, 20Y1. Statz provides customers a refund for any returned or damaged merchandise. At the end of 2011, Statz Company estimates that customers will request refunds for 1.6% of sales and estimates that merchandise costing $11,000 will be returned. Assume that on February 3, 20Y2, Buck Co. returned merchandise with an invoice amount of $5,000 for a cash refund. The returned merchandise originally cost Statz Company $3,000. 


a. Journalize the adjusting entries on December 31, 20Y1, to record the expected customer returns. If an amount box does not require an entry, leave it blank. 

b. Journalize the entries to record the returned merchandise and cash refund to Buck Co. on February 3, 2012. If an amount box does not require an entry, leave it blank. 

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Answer #1
Date Account Titles Debit Credit
Dec-31 Sales $       28,800
        Customer Refunds Payable $       28,800

Expected Customer Refunds = $1800000 x 1.6% = $28800

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