On December 10, Year 1, Cantlay Inc. made $500,000 in sales on account to various customers. The cost of the merchandise sold is $350,000. Cantlay estimates that 4% of the merchandise will be returned. Cantlay allows customers to return merchandise for a credit or refund within 30 days of purchase. On December 20, Cantlay gave $16,000 credit to various customers related to the return of merchandise. Assume that Cantlay uses a perpetual inventory system.

Required:

1. Prepare the journal entries to record the sale on December 10, the return of merchandise on December 20, and any adjusting entry necessary on December 31.
2. Assume that on January 9, Year 2, Cantlay gave $3,800 credit to customers related to the December 10 sales. Prepare the journal entries required on January 9 to record the return of merchandise and the expiration of the return period.
3. Assume that on January 9, Year 2, Cantlay gave $4,100 credit to customers related to December 10 sales. Prepare the journal entries required on January 9 to record the return of merchandise and the expiration of the return period.
4. Next Level What is the conceptual advantage of recording sales returns and allowances as a reduction of revenue?