During 2016, Radek Technologies sold merchandise for a total of $800,000. The cost of merchandise to Radek was $560,000. Radek allows a 60 day return period for the merchandise it sells. At year-end, Radek estimates there are $90,000 of sales (with a cost of $63,000 to Radek) that are still within the 60-day return period. From past experience, Radek believes that 5% of this merchandise will be returned. Assume Radek's fiscal year is December 31.

Radek's adjusting journal entries will include:

Question 4 options:

A)

No adjusting journal entry is required. Return will be recognized when it occurs.

B)

A credit to Cost of Goods Sold for $3,150

C)

A debit to Estimated Inventory Return for $4,500

D)

A debit to Sales Refunds Payable for $4,500

E)

A credit to Sales Returns and Allowances for $3,150