On January 5, 2017, ShoeKing Corporation sells for cash 500 pairs of volleyball shoes to FootAction, a shoe retailer, for $ 70 each. FootAction has the right to return the shoes for any reason up to March 31, 2017, for a full refund. The cost of each pair of shoes is $ 32. ShoeKing predicts that it is probable that 40 pairs of the shoes will be returned. ShoeKing uses the perpetual method for inventory.
Required:
1. Prepare ShoeKing’s journal entry on January 5, 2017, to account for this transaction.
2. Assume that FootAction returns 35 pairs of shoes on March 31, 2017. Prepare the journal entry to record this return.