In your first year of operations, your total sales were $3,000,000 and your cost of goods sold was $2,200,000. You allow your customers to return any merchandise purchased within 60 days of sale.

By the end of the year, a total of $85,500 of sales were returned. The bookkeeper was unsure how to record the sales returns and simply debited the Miscellaneous Expense account for the returns.

Management estimates that 5% of all sales made will be returned.

Required Prepare any necessary adjusting entries at year end. Assume the entity follows IFRS.