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Zell Company had sales of $1,800,000 and related cost of merchandise sold of $1,150,000 for its first year of operations ending December 31, 2016. Zell

Zell Company had sales of $1,800,000 and related cost of merchandise sold of $1,150,000 for its first year of operations ending December 31, 2016. Zell Company provides customers a refund for any returned or damaged merchandise. At the end of the year, Zell Company estimates that customers will request refunds for 1.5% of sales and estimates that merchandise costing $16,000 will be returned. Assume that on February 3, 2017 Anderson Co. returned merchandise with a selling price of $5,000 for a cash refund. The returned merchandise originally cost Zell Company $3,100.

Required:

(a) Journalize the adjusting entries on December 31, 2016 to record the expected customer returns.*
(b) Journalize the entries to record the returned merchandise and cash refund to Anderson Co.*
*Refer to the Chart of Accounts for exact wording of account titles.

CHART OF ACCOUNTS

Zell Company

General Ledger

ASSETS

110 Cash

120 Accounts Receivable

125 Notes Receivable

130 Merchandise Inventory

131 Estimated Returns Inventory

140 Office Supplies

141 Store Supplies

142 Prepaid Insurance

180 Land

192 Store Equipment

193 Accumulated Depreciation-Store Equipment

194 Office Equipment

195 Accumulated Depreciation-Office Equipment

LIABILITIES

210 Accounts Payable

216 Salaries Payable

218 Sales Tax Payable

219 Customers Refunds Payable

220 Unearned Rent

221 Notes Payable

EQUITY

310 Owner, Capital

311 Owner, Drawing

312 Income Summary

REVENUE

410 Sales

610 Rent Revenue

EXPENSES

510 Cost of Merchandise Sold

521 Delivery Expense

522 Advertising Expense

524 Depreciation Expense-Store Equipment

525 Depreciation Expense-Office Equipment

526 Salaries Expense

531 Rent Expense

533 Insurance Expense

534 Store Supplies Expense

535 Office Supplies Expense

536 Credit Card Expense

539 Miscellaneous Expense

710 Interest Expense

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