Jack’s Uniform Company sells durable work boots and offers all customers the unc

Question

Jack’s Uniform Company sells durable work boots and offers all customers the unconditional right to return the boots if not satisfied.   They can return boots for up to six months from the date of purchase. Jack’s sells $22,000 worth of boots on account in March 2013. Based on prior experience Jack’s expects about 10% to be returned.

What are the journal entries for the sale in March 2013.

If one customer who purchased $1,500 worth of boots returned them in August what would the journal entry be

Explanation / Answer

Answer:

The entry will be for entire sale amount but a provision for warranty shall be made:

So the journal entry is:

For Sales:

By Cash Dr $22,000

To Sales Cr $22,000

For Warranty provision:

By Warranty Expenses Dr $2,200 ($22,000*10%)

To Estimated Warranty Liability Cr $2,200

On Return of goods:

By Estimated Warranty Liability Dr $1,500

To Cash Cr $1,500

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