Exercise 18-21 Novak Publishing Co. publishes college textbooks that are sold to

ID: 2561810 • Letter: E

Question

Exercise 18-21

Novak Publishing Co. publishes college textbooks that are sold to bookstores on the following terms. Each title has a fixed wholesale price, terms f.o.b. shipping point, and payment is due 60 days after shipment. The retailer may return a maximum of 30% of an order at the retailer’s expense. Sales are made only to retailers who have good credit ratings. Past experience indicates that the normal return rate is 11%. The costs of recovery are expected to be immaterial, and the textbooks are expected to be resold at a profit.

On July 1, 2017, Novak shipped books invoiced at $12,000,000 (cost $9,600,000). Prepare the journal entry to record this transaction. (Credit account titles are automatically indented when amount is entered. Do not indent manually.If no entry is required, select "No entry" for the account titles and enter 0 for the amounts.)

Account Titles and Explanation
Debit
Credit
(To recognize revenue.)
(To record cost of goods sold.)

On October 3, 2017, $1,200,000 of the invoiced July sales were returned according to the return policy, and the remaining $10,800,000 was paid. Prepare the journal entries for the return and payment. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No entry" for the account titles and enter 0 for the amounts.)

Date
Account Titles and Explanation
Debit
Credit
Oct. 3, 2017
(To record the return)
(To record cost of goods returned)
(To record the payment)

Assume Novak prepares financial statements on October 31, 2017, the close of the fiscal year. No other returns are anticipated. Indicate the amounts reported on the income statement and balance related to the above transactions. (If answer is 0, please enter 0. Do not leave any fields blank.)

Income Statement (partial)

October 31, 2017
For the Year Ended October 31, 2017
For the Quarter Ended October 31, 2017
$

Add
Less
:

Dividends Declared
Expenses
Gross profit
Net Income / (Loss)
Net Income to Retained Earnings
Net Sales
Retained Earnings 11/1
Retained Earnings 10/31
Revenues
Total Cost & Expenses
Total Revenues

Dividends Declared
Expenses
Gross profit
Net Income / (Loss)
Net Income to Retained Earnings
Net Sales
Retained Earnings 11/1
Retained Earnings 10/31
Revenues
Total Cost & Expenses
Total Revenues
$

Balance Sheet (partial)

October 31, 2017
For the Year Ended October 31, 2017
For the Quarter Ended October 31, 2017
$

Click if you would like to Show Work for this question:
Open Show Work

Question Attempts: 0 of 5 used

Explanation / Answer

On July 1, 2017, Novak shipped books invoiced at $12,000,000 (cost $9,600,000).

Answer –

Journal Entry –

Account Title and Explanation Debit Credit

Accounts Receivables $12,000,000

Sales Revenue $12,000,000

(To record the sales revenue)

Cost of goods sold $9,600,000

Inventory $9,600,000

(To record cost of goods sold)

On October 3, 2017, $1,200,000 of the invoiced July sales were returned according to the return policy, and the remaining $10,800,000 was paid.

Answer –

Journal Entry –

Account Title and Explanation Debit Credit

Sales Returns and allowances $1,200,000

Accounts Receivables $1,200,000

(To record sales returns)

Inventory $240,000

Cost of goods sold $240,000

(To record cost of goods returned)

($1,200,000 * 20%)

($12,000,000 - $9,600,000) / $12,000,000

Cash $10,800,000

Accounts Receivable $10,800,000

(To record payment)

Indicate the amounts reported on the income statement and balance related to the above transactions.

Solution –

Partial Income Statement

For the Period ended 31, October 2017

Amount

Sales Revenue

12,000,000

Less -

Sales Returns and allowances

1,200,000

Gross Profit

10,800,000