Recording Sales with Expected Returns Novelty Inc. developed a new product during the year, and its financial results follow. To increase acceptance by retailers, Novelty sold the product to retailers with an unconditional right of return which expires on February 1 of the next year. Novelty estimates total returns to be 30% of sales, originally made on account. All sales are on credit. Novelty uses the perpetual inventory system. Sales in the current year Cost of goods sold in the current year Returns of current year sales in the current year Returns of current year sales in January of next year Required $252,000 168,000 16,800 (cost $11,200) 21,000 (cost $14,000) Prepare the following entries, including the sales and cost of goods sold entry for each requirement. a. Prepare the current year sales journal entries. b. Record actual returns in the current year. Assume actual returns are on credit. c. Record estimated returns on December 31 of the current year. d. Record actual returns in January of the next year. Assume actual returns are on credit. e. Record adjusting entries at year end. Ref. a. b. To record sales Account Name To record cost of sales Dr. Cr. C. To record cost of actual sales returns To record estimated sales returns d. To record cost of estimated sales returns e. Check To record sales returns To record cost of sales returns To adjust sales returns for refund liability To adjusted cost of goods sold for refund liability