Navis, Inc., has a liberal return policy that allows its customers to return any purchase within 30 days without question. While following this policy results in more returns than are normal in the industry, Navis management believes that policy helps create customer loyalty, and as a result, it is willing to accept a higher level of returns. In addition, the nature of the products Navis sells means they can easily be returned to its inventory and become available to other customers without significant additional cost.

a. Record Navis, Inc.’s sales for a month at $75,000. The items sold cost $62,500. Navis records sales at the total invoice amount.

b. Record the return of $7,500 of the above sales within the 30-day return period.

c. Record the receipt of payment on the remainder of the month’s sales, assuming that customers purchasing $50,000 took advantage of a 2 percent cash discount for early payment. None of the customers taking advantage of the cash discount were among those that returned their purchases.