Scott Company had sales of $12,050,000 and related cost of goods sold of $7,100,000 for the year ending December 31, 20Y8. Scott provides customers a refund for any returned or damaged merchandise. Scott Company estimates that customers will request refunds for 0.6% of sales and estimates that merchandise costing $53,000 will be returned in 20Y9. Journalize the adjusting entries on December 31, 20Y8, to record the expected customer returns. If an amount box does not require an entry, leave it blank.

See explanation section.

Explanation:

December 31, 20Y8          Sales                Debit                     $72,300

                                      Customer Refunds Payable     Credit                $72,300

Note: Calculation: $12,050,000 × 0.6% = $72,300

(As the customers requested refunds for 0.6% of sales, we have to deduct it from total sales to give refund.)

December 31, 20Y8           Estimated Returns Inventory Debit  $53,000

                                            Cost of goods sold      Credit                   $53,000

Note: As the returned products had the cost of sales, we have to give cost of goods sold journal assuming the company used perpetual inventory system.                              

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