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Adjusting entry for customer refunds, allowances, and returns

Statz Company had sales of $1,700,000 and related cost of goods sold of $1,200,000 for its first year of operations ending December 31, 20Y1. Statz provides customers a refund for any returned or damaged merchandise. At the end of 20Y1, Statz Company estimates that customers will request refunds for 1.7% of sales and estimates that merchandise costing $18,000 will be returned. Assume that on February 3, 20Y2, Buck Co. returned merchandise with an invoice amount of $5,100 for a cash refund. The returned merchandise originally cost Statz Company $3,300.

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a. Journalize the adjusting entries on December 31, 20Y1, to record the expected customer returns. If an amount box does not require an entry, leave it blank.

Date	Account	Debit	Credit
20Y1 Dec. 31
20Y1 Dec. 31

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At the end of the accounting period as part of the adjusting process, a current asset account for the estimated amount of merchandise that will be returned by customers is used as well as a liability account to estimate refunds that will be paid to customers.

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b. Journalize the entries to record the returned merchandise and cash refund to Buck Co. on February 3, 20Y2. If an amount box does not require an entry, leave it blank.

Date	Account	Debit	Credit
20Y2 Feb. 3
20Y2 Feb. 3

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