Question

On March 10, 2017, Wildhorse Company sold to Barr Hardware 240 tool sets at a price of $50 each (cost $31 per set) with terms of n/60, f.o.b. shipping point. Wildhorse allows Barr to return any unused tool sets within 60 days of purchase. Wildhorse estimates that (1) 10 sets will be returned, (2) the cost of recovering the products will be immaterial, and (3) the returned tools sets can be resold at a profit. On March 25, 2017, Barr returned 7 tool sets and received a credit to its account. Prepare journal entries for Wildhorse to record (1) the sale on March 10, 2017, (2) the return on March 25, 2017, and (3) any adjusting entries required on March 31, 2017 (when Wildhorse prepares financial statements). Wildhorse believes the original estimate of returns is correct. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No entry" for the account titles and enter 0 for the amounts.) No. Account Titles and Explanation Debit Credit (1) (To record sales) (To record cost of goods sold) (2) (To record sales returns) (To record cost of goods returned) (3) (Adjusting entry for sales returns) (Adjusting entry for cost of goods sold) SHOW LIST OF ACCOUNTS LINK TO TEXT Indicate the income statement and balance sheet reporting by Wildhorse at March 31, 2017, of the information related to the Barr sales transaction. Income Statement (partial) $ : $ Balance Sheet (partial) $ : $ $

Answer 1

Solution:-

a. Prepare journal entries for Wildhorse to record:-

No	Account titles and explanation	Debit	Credit
1	Accounts receivable	12,000
	Sales revenue (240 * 50)		12,000
	(To record sales)
	Cost of goods sold	7,440
	Inventory (240 * 31)		7,440
	(To record cost of goods sold)
2	Sales return & allowance	350
	Accounts receivable (7 * 50)		350
	(To record sales returns)
	Returned inventory	217
	Cost of goods sold (7 * 31)		217
	(To record cost of goods returned)
3	Sales return & allowance	150
	Allowance for sales return & allowances (3 * 50)		150
	(Adjusting entry for sales returns)
	Estimated inventory return	93
	Cost of goods sold (3 * 31)		93
	(Adjusting entry for cost of goods sold)

2. Indicate the income statement:-

Income Statement (Partial)
For the quarter ended march 31,2017
Sales revenue (240 * 50)	12,000
Less Sales R & A (350 + 150)	500
Net sales	11,500
Less Cost of goods sold (217 + 93)	310
Gross profit	11,190

3. Indicate the Balance Sheet:-

Balance Sheet (Partial)
March 31,2017
Assets:
Accounts receivable (12,000 - 350)	11,650
Less allowance for Sales R & A	150
Net accounts receivable	11,500
Returned inventory (including estimated) (10 * 31)	310