Question

During its first year of operations, Tron Auto Dealership (TAD) bought vehicles from a manufacturer on account at a cost of $620,000. TAD returned $164,000 of these vehicles to the manufacturer for credit on its account. TAD then sold $392,000 of the remaining vehicles at a selling price of $697,000. TAD’s customers rarely return vehicles, so TAD records sales returns only as they occur. One customer did return a vehicle to TAD, which had been sold to the customer for $149,000. The vehicle was in perfect condition, so it was put back into TAD’s inventory at TAD’s cost of $88,000.

Prepare journal entries to record these transactions, assuming TAD uses a perpetual inventory system.

1. Record the sale of vehicles at $697,000.

2. Record the cost of vehicles sold at $392,000.

3. Record the return of vehicles by the customer at $149,000.

4. Record the cost of vehicles returned at $88,000.

Answer 1

Journal
Transaction	General Journal	Debit	Credit
1	Accounts Receivable	$ 697,000.00
	Sales revenue		$ 697,000.00
	(Sales revenue earned)
2	Cost of goods sold	$ 392,000.00
	Merchandise Inventory		$ 392,000.00
	(Cost of goods sold recorded)
3	Sales returns	$ 149,000.00
	Accounts Receivable		$ 149,000.00
	(Goods returned from customer)
4	Merchandise Inventory	$    88,000.00
	Cost of goods sold		$    88,000.00
	(Goods returned added back to inventory)

When goods are returned by customer they are added back to inventory in hand and same amount is deducted from cost of goods sold by crediting cost of goods sold.