PrimeTech sold $2,000,000 of merchandise on account during the current year. The cost for this merchandise to PrimeTech was $600,000. To encourage early payment from its customers, PrimeTech offers credit terms of 2/10, n/30. At year-end, PrimeTech recognizes that there are $200,000 of sales on account still eligible for the 2 percent discount. PrimeTech believes that all customers will pay within the discount period to receive this discount. In addition, PrimeTech allows a 60-day return privilege for the merchandise it sells. At year-end, PrimeTech estimates there remain $450,000 of sales (with a cost to PrimeTech of $135,000) that are still within the 60-day return period and that, based on past experience, 7 percent of this merchandise is expected to be returned. 

Prepare the period-end adjusting journal entries needed for PrimeTech to comply with the new revenue recognition standard. Assume PrimeTech’s fiscal year-end is December 31.

 

(Please explain/walk through how the debit and credit values are calculated)