On October 2, 2019, Laplante Company sold $6,000 of its elite camping gear (with a cost of $3,600) to Lynch Outfitters. As part of the sales agreement, Laplante includes a provision that if Lynch is dissatisfied with the product, Laplante will grant an allowance on the sales price or agree to take the product back (although returns are rare, given the long-term relationship between Laplante and Lynch). Lynch expects total allowances to Lynch to be $800. On October 16, 2019, Laplante grants an allowance of $400 to Lynch because the color for some of the items delivered was a bit different than what appeared in the catalog.
Instructions
a. Prepare journal entries for Laplante to record (1) the sale on October 2, 2019, (2) the granting of the allowance on October 16, 2019, and, (3) any adjustment required on October 31, 2019 (when Laplante prepares financial statements). Laplante now estimates additional allowances of $250 will be granted to Lynch in the future.
b. Indicate the income statement and statement of financial position reporting by Laplante at October 31, 2019, of the information related to the Lynch transaction.