27th Edition
WARREN + 5 others
ISBN: 9781337272094




27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Customer returns and allowances

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 he 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.


To determine

Sales is an activity of selling the merchandise inventory of a business.

To Record: The adjusting entry for estimated customer allowances and returns.



  • Sales is revenue and it decreases the value of equity by $27,000. Therefore, debit sales with $27,000.
  • Customer refunds payable is a liability and it increased by $27,000. Therefore, credit customer refunds payable account with $27,000.

Record the journal entry for the return of the merchandise.

Date Accounts and Explanation Debit ($) Credit ($)
December 31, 2019 Estimated Returns Inventory 16...


To determine

To Record: The sales transactions in the books of the company.

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