Question

On March 10, 2017, Riverbed Company sold to Barr Hardware 200 tool sets at a price of $49 each (cost $32 per set) with terms of n/60, f.o.b. shipping point. Riverbed allows Barr to return any unused tool sets within 60 days of purchase. Riverbed 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 5 tool sets and received a credit to its account. Assume that instead of selling the tool sets on credit, that Riverbed sold them for cash.

Prepare journal entries for Riverbed 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 Riverbed prepares financial statements). Riverbed believes the original estimate of returns is correct.

Indicate the income statement and balance sheet reporting by Riverbed at March 31, 2017, of the information related to the Barr sales transaction.

Answer 1

Date	Debit	Credit	Credit
10-Mar	Cash	9,800.00
	Sales		9,800.00
	(Being Goods Sold)
10-Mar	Cost of Goods Sold	6,400.00
	Inventory		6,400.00
	(Being Cost of Sales Booked)
25-Mar	Sales Returns and Allowances	245.00
	Cash		245.00
	(Being 5 Units Returned)
25-Mar	Returned Inventory	160.00
	Cost of Goods Sold		160.00
	(Being Cost of Sales Reversed on Return)
31-Mar	Sales Returns and Allowances	245.00
	Allowance for Sales Returns and Allowances		245.00
	(Being Provision for Sales Return Created)
31-Mar	Estimated Inventory Returned	160.00
	Cost of Goods Sold		160.00

Income Statement (Partial)
Sales	9,800.00
Less: Sales Returns and Allowances	490.00
Net Sales	9,310.00
Cost of Goods Sold	6,080.00
Gross Profit	3,230.00

Balance Sheet (Partial)
Current Liability
Sales Returns and Allowances*	245.00
Current Assets
Estimated Inventory Returned	320.00

* If it is on account sales we will show it as deduction from Accounts receivable

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