Zell Company had sales of $1,800,000 and related cost of merchandise sold of $1,150,000 for its first year of operations ending December 31, 2019

Zell Company had sales of $1,800,000 and related cost of merchandise sold of $1,150,000 for its first year of operations ending December 31, 2019. Zell Company provides customers a refund for any returned or damaged merchandise. At the end of the year, Zell Company estimates that customers will request refunds and allowances for 1.5% of sales and estimates that merchandise costing $16,000 will be returned. Assume that on February 3, 2020, Anderson Co. returned merchandise with a selling price of $5,000 for a cash refund. The returned merchandise originally cost Zell Company $3,100. (a) Journalize the adjusting entries on December 31, 2019, to record the expected customer refunds, allowances, and returns. (b) Journalize the entries to record the returned merchandise and cash refund to Anderson Co.

Answer:

a.  2019

 Dec. 31 Sales ($1,800,000 × 1.5%) 27,000

Customer Refunds Payable27,000

31 Estimated Returns Inventory 16,000

Cost of Merchandise Sold16,000

b.  2020

 Feb. 3 Customer Refunds Payable 5,000

Cash5,000

3 Merchandise Inventory 3,100

Estimated Returns Inventory3,100