Practice Exercise 18-5

Elec-Air is selling a new model of high-efficiency air conditioner. To stimulate interest, Elec-Air is granting certain large customers the unconditional right to return these air conditioners if not fully satisfied. The right of return extends for six months. Elec-Air estimates returns of 9%. Elec-Air sells these air conditioners on account for $19,100,000(cost $10,505,000) on April 2, 2017. Customers are required to pay the full amount due by June 15, 2017.

a. Prepare the journal entry for Elec-Air on April 2, 2017. (Use the net method to record sales.)

b. Assume that on May 15, 2017, one customer returns air conditioners that it purchased from Elec-Air for $400,000. Prepare the journal entry to record this transaction and the receipt of cash from customers on June 15, 2017. (Use the net method to record sales.)

c. Assume Elec-Air prepares financial statements quarterly. Prepare the necessary entries (if any) to adjust Elec-Airs financial results for the above transactions on June 30, 2017, assuming remaining expected returns of $1,319,000. (Use the net method to record sales.)