Question

Sandhill Growth Company is testing a number of new agricultural seeds that it has recently harvested. To stimulate interest, it has decided to grant five of its largest customers the unconditional right to return these products if not fully satisfied. The right of return extends for four months. Sandhill Growth sells these seeds on account for $1,950,000 (cost $600,000) on April 2, 2020. Customers are required to pay the full amount due by June 15, 2020. The company follows IFRS.

Prepare the journal entry for Sandhill Growth at April 2, 2020, assuming Sandhill Growth estimates returns of 20% based on prior experience. (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.)

Date	Account Titles and Explanation	Debit	Credit
April 2, 2020
	(To record sale on account)
April 2, 2020
	(To record cost of goods sold)

eTextbook and Media

List of Accounts

  

  

Assume that one customer returns the seeds on July 1, 2020. Prepare the journal entry to record this transaction, assuming this customer purchased $130,000 of seeds from Sandhill Growth. (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.)

Date	Account Titles and Explanation	Debit	Credit
July 1, 2020
	(To record return from customer)
July 1, 2020
	(To record return of inventory)

eTextbook and Media

List of Accounts

  

  

Prepare the journal entry for Sandhill Growth at April 2, 2020, assuming Sandhill Growth estimates returns of 20% based on prior experience. Sandhill follows ASPE. (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.)

Date	Account Titles and Explanation	Debit	Credit
April 2, 2020
	(To record sale on account)
April 2, 2020
	(To accrue for sales returns)
April 2, 2020
	(To record cost of goods sold)

eTextbook and Media

List of Accounts

  

  

Assume that one customer returns the seeds on July 1, 2020.

Prepare the journal entry to record this transaction, assuming this customer purchased $130,000 of seeds from Sandhill Growth. Sandhill follows ASPE. (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. Round answers to 0 decimal places, e.g. 5,275.)

Date	Account Titles and Explanation	Debit	Credit
July 1, 2020
	(To record return from customer)
July 1, 2020
	(To record return of inventory)

Answer 1

1). Journal entry for Sandhill growth company at April 2, 2020:

Date	Accounts title & explanation	Debit($)	Credit($)
April 2, 2020	Accounts receivable	1,950,000
	Sales revenue		1,950,000
	(To record sale on account)
April 2, 2020	cost of goods sold	600,000
	Inventory		600,000
	(To record cost of goods sold)

2). Journal entry to record sales return and cost of goods returned at July 1,2020:

Returned inventory. = ($600,000/$1,950,000)*$130,000

= $ 40,000  

Accounts receivable = $1,950,000-$130,000

= $ 1,820,000

Date	Accounts title & explanation	debit($)	credit($)
July 1, 2020	sales return and allowances	130,000
	Accounts receivable		130,000
	( To record return from customer)
July 1, 2020	Returned inventory	40,000
	Cost of goods sold		40,000
	(To record return of inventory)
June 15, 2020	Cash	1,820,000
	Accounts receivables		1,820,000