Towbin Products sells merchandise on credit for $7,000 on December 1, 2019. The merchandise cost Towbin $4,900 (70% of the selling price). Towbin estimates that returns and allowances will amount to 4% of sales. On December 22, 2019, a customer returns for credit merchandise originally sold on December 1 for $200.

Required:

1.

Assume Towbin uses a periodic inventory system. Prepare the journal entries to record the preceding sale and the return of merchandise.

2.

Assume that Towbin uses a perpetual inventory system. Prepare the journal entries to record the preceding sale and the return of merchandise.

3.

Consider your answer to Requirement 1. How would the preceding information be reflected on Towbins December 31, 2019, financial statements?

4.

Next Level What is the conceptual advantage of recording sales returns and allowances as a reduction of revenue?

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GENERAL JOURNAL

Score: 30/63

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Points:

5.71 / 12

Feedback

A company should record the estimated amount of future returns in the period of sale to correctly report revenue equal to the amount that it expects to be entitled to receive. The difference between the receivable and the revenue represents the companys obligation for future returns.

When sales returns actually occur for goods sold on credit, the company records an adjustment to accounts receivable and reduces the companys obligation for future returns.

2. Assume that Towbin uses a perpetual inventory system. Prepare the journal entries to record the preceding sale and the return of merchandise.

General Journal Instructions

All transactions on this page must be entered (except for post ref(s)) before you will receive Check My Work feedback.

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GENERAL JOURNAL

Score: 14/125

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