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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Longmire & Sons nude sales un credit to Alderman Sports totaling $500,000 on April 18. The cost of the goods sold is $400,000. Longmire estimates 3% of its sales to Alderman may be returned. On May 22, $9,000 worth of goods (with a cost of $7,200) are returned by Alderman. Longmire uses a periodic inventory system. Prepare the related journal entries for Longmire & Sons.

To determine

Record the journal entry.

Explanation

Accounts receivable:

Accounts receivable refers to the amounts to be received within a short period from customers upon the sale of goods and services on account. In other words, accounts receivable are amounts customers owe to the business. Accounts receivable is an asset of a business.

Prepare journal entry:

DateAccount Title and ExplanationDebitCredit
 Accounts receivable$500,000 
      Sales revenue (2) $485,000
      Return liability (1) $15,000
      (To record the amount of sales revenue and sales returns and allowances)  

Table (2)

  • Accounts receivables are an asset and it is increased. Therefore, debit accounts receivables account by $500,000.
  • Sales revenue is a component of stockholders’ equity and it is increased. Therefore, credit sales revenue account by $485,000.
  • Return liability is a liability and it is increased. Therefore, credit returns liability account by $15,000.
DateAccount Title and ExplanationDebitCredit
 Return liability$5,000 
      Accounts receivable assigned $5,000
      (To record sales returns and allowances)  

Table (5)

  • Return liability is a liability and it is decreased...

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