Zell Company had sales of $1,800,000 and related cost of merchandise sold of $1,150,000 for its first year of operations ending December 31, 2019. Zell Company provides customers a refund for any returned or damaged merchandise. At the end of the year, Zell Company estimates that customers will request refunds and allowances for 1.5% of sales and estimates that merchandise costing $16,000 will be returned. Assume that on February 3, 2020, Anderson Co. returned merchandise with a selling price of $5,000 for a cash refund. The returned merchandise originally cost Zell Company $3,100. (a) Journalize the adjusting entries on December 31, 2019, to record the expected customer refunds, allowances, andreturns. (b) Journalize the entries to record the returned merchandise and cash refund to Anderson Co.

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Asked Dec 9, 2019
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Zell Company had sales of $1,800,000 and related cost of merchandise sold of $1,150,000 for its first year of operations ending December 31, 2019. Zell Company provides customers a refund for any returned or damaged merchandise. At the end of the year, Zell Company estimates that customers will request refunds and allowances for 1.5% of sales and estimates that merchandise costing $16,000 will be returned. Assume that on February 3, 2020, Anderson Co. returned merchandise with a selling price of $5,000 for a cash refund. The returned merchandise originally cost Zell Company $3,100. (a) Journalize the adjusting entries on December 31, 2019, to record the expected customer refunds, allowances, and
returns. (b) Journalize the entries to record the returned merchandise and cash refund to Anderson Co.

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Expert Answer

Step 1

a.

 

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Accounts and Explanation Debit ($) Credit ($) Date December 31, Sales 27,000 2019 Customer Refunds Payable (To record the sale of inventory on account after discount) 27,000 Working Note: Calculate the amount of sales. Amount of sales = Salesx Estimated percent of refunds = S1, 800, 000x1.5% =$27,000 Accounts and Explanation Estimated Returns Inventory Debit (S) Credit ($) 16,000 Date December 31, 2019 Cost of Merchandise Sold 16,000 (To record the retum of the merchandise)

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Step 2

b.

Record the sales transactions in ...

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Account Title and Post Debit Credit Date ($) 5,000 Explanation Customer Refunds Payable Cash Ref. (S) February 3, 2020 5,000 (To record sales returns)

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