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On July 10, 2019, Yared Music sold CDs to retailers on account and recorded sales revenue of $700,000 (cost $560,000). Yared grants the right to return CDs that do not sell in 3 months following delivery. Past experience indicates that the normal return rate is 15%. By October 11, 2019, retailers returned CDs to Yared and were granted credit of $78,000. Prepare Yared journal entries to record (a) the sale on July 10, 2019, (b) $78,000 of returns on October 11, 2019, and (c) any entry necessary on October 31, 2019. Assume that Yared prepares financial statement on October 31, 2019.​

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abiolataiwo2015

The appropriate journal entries to record the given transactions are:

Debit Accounts Receivable $700000; Credit Refund Liability $105000;

Credit Sales Revenue $595000.

Journal entries:

Yared Music journal entries

a) Sales on July 10,2019

Debit Accounts Receivable $700000  

Credit Refund Liability $105000

($700,000 x .15)    

Credit Sales Revenue   $595000

[(100%-15%)×$700000]  

   

Debit Cost of Goods Sold $476000

[(100%-15%)×$560000]  

Debit Estimated Inventory Returns $84000  

($560,000 x .15)    

Credit Inventory   $560000

b. Return on October 11, 2019

Debit Refund Liability $78000  

Credit Accounts Receivable  $78000

Debit Returned Inventory $62400  

Credit Estimated Inventory Returnb$62400

[($560,000/$700,000)×$78,000]

c. 10/31/2019

No journal entries are needed as the return period has expired.

Inconclusion the appropriate journal entries to record the given transactions are: Debit Accounts Receivable $700000; Credit Refund Liability $105000; Credit Sales Revenue $595000.

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