Revenue Recognition StandardAdjusting Journal Entries

During the year, Price Company sells merchandise on account totaling $10,000,000 with a cost of merchandise to Price of $5,000,000. Price offers its customers credit terms of 1/15, n/30. Price recognizes that there are $900,000 of sales on account still eligible for the 1 percent discount at year-end and believes that all customers will pay within the discount period. Additionally, Price allows a 90-day return privilege for the merchandise it sells. At year-end, Price estimates sales of $2,500,000 (with a cost to Price of $1,250,000) remain that are still within the 90-day return period. From past experience, 8 percent of this merchandise is expected to be returned. Prepare the period-end adjusting journal entries needed for Price Company to comply with the revenue recognition standard. Prices fiscal year-end is December 31.

Credit General Journal Description Allowance for sales discounts Sales refunds payable To record estimated sales discounts. Debit 9,000 0 9,000 To record estimated return of sales still eligible for return. To record the cost of merchandise sold for sales still eligible for return