Question

E18.17  (Sales with Returns) On March 10, 2020, Steele Company sold to Barr Hardware 200 tool sets at a price of $50 each (cost $30 per set) with terms of n/60, f.o.b. shipping point. Steele allows Barr to return any unused tool sets within 60 days of purchase. Steele 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, 2020, Barr returned six tool sets and received a credit to its account. . Assume that instead of selling the tool sets on credit, that Steele sold them for cash.

Instructions
a.    Prepare journal entries for Steele to record (1) the sale on March 10, 2020, (2) the return on March 25, 2020, and (c) any adjusting entries required on March 31, 2020 (when Steele prepares financial statements). Steele believes the original estimate of returns is correct.

b.    Indicate the income statement and balance sheet reporting by Steele at March 31, 2020, of the information related to the Barr sale.

Answer 1

Answer
Date	Account	Debit	credit
10-03-2017	Accounts receivable [200*50]	$       10,000
	To, Sales revenue		$       10,000
	[ To record Sales made on account]
	Cost of goods sold	$         6,000
	To, Merchandise inventory [30*200]		$         6,000
	[To record cost of sales recorded]
25-03-2017	Sales returns and allowance [6* 50]	$            300
	To, Accounts receivable		$            300
	[ To record the sales return]
	Merchandise inventory	$            180
	To, Cost of goods sold [30*6]		$            180
	[ To record the reversal of COGS]
31-03-2017	sales returns and allowance [4*50]	$            200
	To, Accounts receivable		$            200
	[ To record the estimated sales return]
	Estimated inventory returns [4*30]	$            120
	To, Cost of goods sold		$            120
	[ To record the estimated reversal of COGS]
	b)
	Income statement (Partial)
	Sales (200*50)	$       10,000
	Less: Sales returns and allowance (50*6)+(50*4)	$           -500
	Net sales	$         9,500
	Less:cost of goods sold [6000-180-120]	$         5,700
	Gross profit	$         3,800
	Balance sheet(Partial)
	Accounts receivable (10,000-300)	$         9,700
	Less ; sales returns and allowance	$           -180
	Net Accounts receivable	$         9,520
	Returned Inventory (10*30)
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