Smith Company is a manufacturer of medical devices and has an excellent quality control department, thus defective product returns are rare. In 20X1, Smith reported sales of $276,344,000. The company did, however, have two returns in 20X1 related to the wrong product model being shipped. Smith’s 20X1 journal entry to record a $37,500 return from a customer (Foxtrot Medical) would be:

• DR Sales returns and allowances $37,500 CR Accounts receivable—Foxtrot Medical $37,500

• DR Sales returns and allowances $37,500 CR Sales $37,500

• DR Sales $37,500 CR Accounts receivable—Foxtrot Medical $37,500

• DR Sales returns expense $37,500 CR Accounts receivable—Foxtrot Medical $37,500