Revenue Recognition

On November $1,2023,$ L$.$L$.$ Bean received an order from Michelle Sylvester for one pair of L$.$L$.$ Bean $8$ boots $($aka $$duck boots.$)$ The selling price of the boots is $$109.$ These boots are on backorder; L$.$L$.$ Bean actually ships the boots to Sylvester on January $2,2024.$ Sylvester$$s credit card is charged when the boots ship; L$.$L$.$ Bean treats the credit card sale as cash since it can deposit the credit card receipts into its bank account immediately. For the sake of simplicity, ignore credit card fees and sales tax. Assume that L$.$L$.$ Bean$$s cost of these boots is $$44.$

a$.$ Journal entry $1$: Journalize the sale of these boots. Be sure to include the date on the journal entry.

b$.$ Journal entry $2$: Journalize the cost of the boots sold.

During the month of January $2024,$ assume that L$.$L$.$ Bean$$s total boot sales are $$140,000.$ All sales are cash sales. The cost of the boots sold was $$56,000.$

a$.$ Journal entry $1$: Record the January sales of the boots on January $31.$

b$.$ Journal entry $2$: Record the January cost of the boots sold on January $31.$

L$.$L$.$ Bean offers a $100\%$ satisfaction guarantee. Assume that L$.$L$.$ Bean has a long history with a consistent $10\%$ return rate.

a$.$ Journal entry $1$: Make the adjusting entry for January to reflect the estimated refunds for the January boot sales of $$140,000.$

b$.$ Journal entry $2$: Also make the adjusting entry to record the cost of estimated returns for January boot sales. Use a cost of goods sold percentage of $40\%$ of sales.

Now assume that Michelle Sylvester returns the L$.$L$.$ Bean boots on January $10,2024($she had received the boots in early January$)$ for a full refund of $$109.($L$.$L$.$ Bean would make an adjusting entry to accrue for returns for all sales at each month end.$)$

a$.$ Journal entry $1$: Record the return of the boots by Sylvester.

b$.$ Journal entry $2$: Record the cost of the boots returned by Sylvester.

Now assume that Stonecreek Outfitters is an authorized reseller of L$.$L$.$ Bean boots and that almost all resellers take advantage of the discount LL Bean offers to them for paying within $10$ days.

a$.$ Journal entry $1$: On January $4,2024,$ L$.$L$.$ Bean receives an order from Stonecreek Outfitters for $$2,500$ and ships the order that same day. Terms of the invoice are $5/10,$ net $30.$

b$.$ Journal entry $2$: On January $12,2024,$ Stonecreek pays its invoice to L$.$L$.$ Bean.

On March $10,2024,$ L$.$L$.$ Bean sells one pair of L$.$L$.$ Bean $8$ boots $($aka $$duck boots$)$ to Dana Smith in its Lyndhurst, Ohio, store. The selling price of the boots is $$109$; Smith pays cash at the time of sale. During the month of March, L$.$L$.$ Bean is running a promotion that awards $$20$ in L$.$L$.$ Bean Dollars for every $$100$ spent in its stores. Accordingly, Smith receives $$20$ in L$.$L$.$ Bean Dollars at the time of purchase. These L$.$L$.$ Bean Dollars can be used the same as cash for the next year at any L$.$L$.$ Bean store or its Website. Based on past experience with these promotions, it is estimated that $75\%$ of the Bean Dollars will be redeemed within the stated time frame. For the sake of simplicity, ignore sales tax.

a$.$ Journal entry: Journalize the sale of these boots. $($Do not make the cost of goods sold journal entry.$)$

Now let$$s say that Smith uses the $$20$ in L$.$L$.$ Bean Dollars on June $5,2024,$ when she purchases a shirt at the L$.$L$.$ Bean Store in Lyndhurst for a selling price of $$43.$ She pays cash of $$23$ at the point of purchase. Ignore sales tax.

a$.$ Journal entry: Journalize the sale of the shirt and the use of the L$.$L$.$ Bean Dollars by Smith. $($Do not make the cost of goods sold journal entry.$)$