The Following Data Relates to a Firm, Which Grants a Liberal

question 80

Essay

The following data relates to a firm, which grants a liberal right of return to its customers: $\begin{array} { | l | l | } \hline \text { Total credit sales for the year } & \$ 100,000 \\\hline \text { Gross profit percentage } & 40 \% \\\hline \text { Collections on account } & \$ 60,000 \\\hline \text { Actual returns during the year } & \$ 20,000 \\\hline \text { Accounts receivable for which the return privilege has yet to expire as of the year-end } &\$ 5,000 \\\hline\end{array}$ The firm is unable to estimate returns
Required:
(a) The summary entries to account for sales-related transactions during the year, and any adjusting entries (assume a perpetual inventory system).
(b) The relevant ending balance sheet accounts, and the income statement.
(c) The entry during the following year assuming the $5,000 of goods is returned before the return privilege expired.
(d) The entry during the following year assuming the return privilege expired on the $5,000 of accounts receivable.

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Definitions:

Short-Term Debt

Borrowings that are due for repayment within one fiscal year or operating cycle.

Marketable Trading Investments

Financial assets that are purchased with the intention of selling them in the short term to profit from price fluctuations.

Unrealized Loss

A decrease in the value of an investment that has not yet been sold and therefore not officially recorded as a loss in the accounting records.

Realized Losses

Refers to the loss recognized when assets are sold for a price lower than their original purchase price.