Question

Coronado Ranch & Farm is a distributor of ranch and farm equipment. Its products include small tools, power equipment for trench-digging and fencing, grain dryers, and barn winches. Most products are sold direct via its company Internet site. However, given some of its specialty products, select farm implement stores carry Coronado’s products. Pricing and cost information on three of Coronado’s most popular products are as follows.

Item		Stand-Alone Selling Price (Cost)
Mini-trencher		$3,000	($1,720)
Power fence hole auger		1,032	($688)
Grain/hay dryer		12,555	($9,460)

On January 1, 2020, Coronado sells augers to Mills Farm & Fleet for $41,280. Mills signs a six-month note at an annual interest rate of 12%. Coronado allows Mills to return any auger that it cannot use within 60 days and receive a full refund. Based on prior experience, Coronado estimates that 5% of units sold to customers like Mills will be returned (using the most likely outcome approach). Coronado’s costs to recover the products will be immaterial, and the returned augers are expected to be resold at a profit. Prepare the journal entries for Coronado on January 1, 2020.

Date	Account Titles and Explanation	Debit	Credit
Jan. 1
	(To record sale on account)
January 1, 2020

(To Record Cost of Goods Sold)

Answer 1

Preparing the Journal Entries for Coronado on January 1, 2020
Account Title and Explanation	Debit	Credit
January 1, 2020
Notes Receivable (Mills)	$         41,280.00		Given
Refund Liability (5% * $41,280)		$           2,064.00	Units Return liability
Sales Revenue		$         39,216.00	Balance
(To Record the Sales)
Cost of Goods Sold	$         26,144.00		Balance
Estimated Inventory Returns (40 * $688 * 5%)	$           1,376.00		Units Return liability
Inventory (40 * $688)		$         27,520.00
(To Record the Cost of Goods Sold)
* Total sale	$         41,280.00
Sale price	1032
Units(total sale/sale price)	40