Exercise 18-21

Novak Publishing Co. publishes college textbooks that are sold to bookstores on the following terms. Each title has a fixed wholesale price, terms f.o.b. shipping point, and payment is due 60 days after shipment. The retailer may return a maximum of 30% of an order at the retailers expense. Sales are made only to retailers who have good credit ratings. Past experience indicates that the normal return rate is 11%. The costs of recovery are expected to be immaterial, and the textbooks are expected to be resold at a profit.

On July 1, 2017, Novak shipped books invoiced at $12,000,000 (cost $9,600,000). Prepare the journal entry to record this transaction. (Credit account titles are automatically indented when amount is entered. Do not indent manually.If no entry is required, select "No entry" for the account titles and enter 0 for the amounts.)

Account Titles and Explanation Debit Credit (To recognize revenue.) (To record cost of goods sold.)

On October 3, 2017, $1,200,000 of the invoiced July sales were returned according to the return policy, and the remaining $10,800,000 was paid. Prepare the journal entries for the return and payment. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No entry" for the account titles and enter 0 for the amounts.)

Date Account Titles and Explanation Debit Credit Oct. 3, 2017 (To record the return) (To record cost of goods returned) (To record the payment)

Assume Novak prepares financial statements on October 31, 2017, the close of the fiscal year. No other returns are anticipated. Indicate the amounts reported on the income statement and balance related to the above transactions. (If answer is 0, please enter 0. Do not leave any fields blank.)

Income Statement (partial) October 31, 2017 For the Year Ended October 31, 2017 For the Quarter Ended October 31, 2017 $ Add Less : Dividends Declared Expenses Gross profit Net Income / (Loss) Net Income to Retained Earnings Net Sales Retained Earnings 11/1 Retained Earnings 10/31 Revenues Total Cost & Expenses Total Revenues Dividends Declared Expenses Gross profit Net Income / (Loss) Net Income to Retained Earnings Net Sales Retained Earnings 11/1 Retained Earnings 10/31 Revenues Total Cost & Expenses Total Revenues $

Balance Sheet (partial) October 31, 2017 For the Year Ended October 31, 2017 For the Quarter Ended October 31, 2017 $

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