Rad Co. manufactures and sells heating and air conditioning systems. Rad Co is a public company.

On September 1, 2021 Rad sold 20 heating systems to Heating Rental Company for $50,000 (on credit). The cost of the heating systems sold was $1,000 each. Heating Rental Company is a new customer. Rad offers a 60-day return policy. Based on past experience usually 5% of the systems will be returned.

Prepare the journal entries for September 1^st.

Expert Solution

September 1, 2020

Accounts Receivable 50,000

Refund Liability (5% X $50,000) 2,500

Sales Revenue 47,500

To record sale on account

Cost of Goods Sold 19,000

Estimated Inventory Returns (5% X $20,000) 1,000

Inventory ($1000 X 20) 20,000

To record cost of goods sold

Two entries are required - one to record sale and the other to record cost of goods sold.

Ribika answered 2 years ago

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