During its first year of operations, Purple Company recorded sales of $$4,000,000.$ Based on industry statistics, Purple estimates $5\%$ of all sales will be returned. Actual returns during the year totaled $$160,000.$

The year$-$end adjusting journal entry to account for estimated sales returns would include a:

Credit to Refund Liability of $$40,000$

Debit to Sales Returns of $$200,000$

Credit to Sales Returns of $$40,000$

Debit to Refund Liability of $$200,000$