A company sold $80,000 of product to a customer on July 1, terms 2/10, n/30. The

Question

A company sold $80,000 of product to a customer on July 1, terms 2/10, n/30. The company uses a perpetual inventory system and the cost of the inventory sold was $20,000. Assume that the company periodically records entries to estimate the potential that some of the sales will be returned by customers for a refund.

Required:

a. Record the transaction on July 1.

b. On July 5, the customer from July 1 returned $10,000 of the merchandise (gross sales price). The related cost of the merchandise was $2,500.

c. On July 9, the customer above paid the final balance due.

Explanation / Answer

Journal entry :

Date accounts & explanation debit credit July 1 Account receivable 80000 Sales revenue 80000 Cost of goods sold 20000 Merchandise inventory 20000 July 5 Sales return and allowance 10000 Account receivable 10000 Merchandise inventory 2500 Cost of goods sold 2500 July 9 Cash (70000*98%) 68600 Sales discount (70000*2%) 1400 Account receivable 70000

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