Crane Publishing Co. publishes college textbooks that are sold to bookstores on the following terms. Each title has a fixed wholesale price, terms f.o.b. shipping point, and payment is due 60 days after shipment. The retailer may return a maximum of 30% of an order at the retailer’s expense. Sales are made only to retailers who have good credit ratings. Past experience indicates that the normal return rate is 12%. The costs of recovery are expected to be immaterial, and the textbooks are expected to be resold at a profit. On July 1, 2020, Crane shipped books invoiced at $15,000,000 (cost $12,000,000).
Prepare the journal entry to record this transaction.
On October 3, 2020, $1,500,000 of the invoiced July sales were returned according to the return policy, and the remaining $13,500,000 was paid.
Prepare the journal entries for the return and payment.
Assume Crane prepares financial statements on October 31, 2020, the close of the fiscal year. No other returns are anticipated. Indicate the amounts reported on the income statement and balance related to the above transactions.
Answer:
(1)
| Date | Description | Debit $ | Credit $ |
| Jul-01 | Account receivable | 15000000 | |
| Sales | 15000000 | ||
| Cost of goods sold | 12000000 | ||
| Inventory | 12000000 |
(2)
| Date | Description | Debit $ | Credit $ |
| Oct-3-2017 | Sales Return and Allowances | 1500000 | |
| Accounts Receivable | 1500000 | ||
| Inventory | 1200000 | ||
| Cost of goods sold | 1200000 | ||
| (12,000,000*1,500,000/15,000,000) | |||
| Cash | 13500000 | ||
| Accounts Receivable | 13500000 |
(3)
| Income Statement(Partial) | |
| For the year ended October 31,2020 | |
| Sales | 15000000 |
| Less: Sales Return and Allowances | -1500000 |
| Net sales | 13500000 |
| Cost of goods Sold(12,000,000-1,200,000) | 10800000 |
| Gross Profit | 24300000 |
(4)
| Balance Sheet | |
| Oct-31,2020 | |
| Accounts Receivable | 0 |
| Inventory | 1200000 |
