You note during the review of sales, that a rebate was issued for the 2018 Incom

Question

You note during the review of sales, that a rebate was issued for the 2018 Income Tax Game to encourage sales. 33,000 (enter the last digit of your student number) games were sold. Customers can mail in their receipt and receive a $1 rebate per game. It is estimated that 60% of customers will send in the rebate. The rebate expires on January 31, 2019. To date, 8,000 customers have sent in the rebate and $16,000 has been refunded. Without any direction, the accounting clerk debited Miscellaneous Selling Expense and credited Cash for the $16,000. The management of Accounting Creations would prefer to have this type of expense in a separate account (Rebate Expense) so they can properly analyze for future ideas.

Prepare the adjusting entry if merchandise inventory is: Debit $425,000;

Explanation / Answer

First we need to cancel the original entry

Cash A/c Dr                      16000

     To M selling expense            16000

Then pass the rebate entry

Interest and discounts Account Dr 16000

       To Rebate Expenses                                16000

Rebate Expenses A/c    Dr        16000

     To Inventory                                                16000

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