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Chico Company allows its customers to return merchandise within $30$ days of purchase.

At December $31,$ the end of its first year of operations, Chico estimates future$-$period merchandise returns of $$70,000($cost of

$$27,500$ related to its current$-$year sales.

A few days later, on January $3,$ a customer returns merchandise with a selling price of $$2,500$ for a cash refund; the returned

merchandise cost $$850$ and is returned to inventory as it is not defective.

a$.$ Prepare the December $31$ year$-$end adjusting journal entry for estimated future sales returns and allowances $($revenue side$).$

b$.$ Prepare the December $31$ year$-$end adjusting journal entry for estimated future inventory returns and allowances $($cost side$).$

c$.$ Prepare the January $3$ journal entries to record the merchandise returned.

Journal entry worksheet

Record the adjusting entry for estimated future sales returns and allowances

$($revenue side$).$

Note: Enter debits before credits.