Customer Returns and Allowances

Zell Company had sales of $1,800,000 and related Cost of Merchandise Sold of $1,150,000 for its first year of operations ending December 31, 2016. Zell Company provides customers a refund for any returned or damaged merchandise. At the end of the year, Zell Company estimates that customers will request refunds for 1.5% of sales and estimates that merchandise costing $16,000 will be returned. Assume that on February 3, 2017 Anderson Co. returned merchandise with a selling price of $5,000 for a cash refund. The returned merchandise originally cost Zell Company $3,100.

a. Journalize the adjusting entries on December 31, 2016 to record the expected customer returns.

2016 Dec. 31
Dec. 31

b. Journalize the entries to record the returned merchandise and cash refund to Anderson Co. 2017 Feb. 3
Feb. 3