(Sales with Returns) TechSolutions Inc. is currently testing a range of new software products. To generate interest, it has decided to grant ten of its top clients the unconditional right of return for these products if they are not fully satisfied. The right of return extends for 3 months. TechSolutions sells these software products on account for $2,500,000 (cost $1,300,000) on February 1, 2023. Clients are required to pay the full amount due by April 10, 2023.

Instructions

(a) Prepare the journal entry for TechSolutions at February 1, 2023, assuming TechSolutions estimates returns of 15% based on prior experience.

(b) Assume that one client returns the software on March 20, 2023, due to unsatisfactory performance. Prepare the journal entry to record this transaction, assuming this client purchased $150,000 of software from TechSolutions.

(c) Briefly describe the accounting for these sales if TechSolutions is unable to reliably estimate returns.