Practice Exercise 18-5

Whispering-Air is selling a new model of high-efficiency air conditioner. To stimulate interest, Whispering-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. Whispering-Air estimates returns of 9%. Whispering-Air sells these air conditioners on account for $20,120,000 (cost $10,060,000) on April 2, 2017. Customers are required to pay the full amount due by June 15, 2017.

Assume that on May 15, 2017 one customer returns air conditioners that it purchased from Whispering-Air for $365,000.

Assume Whispering-Air prepares financial statements quarterly. Prepare the necessary entries (if any) to adjust Whispering-Airs financial results for the above transactions on June 30, 2017, assuming remaining expected returns of $1,210,000.

Using NET METHOD to record sales

Date Account Titles and Explanation Debit Credit Apr. 2, 2017 (To record sales) (To record cost of goods sold) (To record estimated returns) May 15, 2017 (To record sales retuns) (To record cost of goods retuned) Jun. 15, 2017 Jun. 30, 2017