Question:

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Step: 1

n
In this scenario, Splish Company sold 170 tool sets to Barr Hardware on March 10, 2020 , at a price of $50 each (costing $32 per set), with terms of ,
60
f.o.b. shipping point. The terms allow Barr to return any unused tool sets within 60 days of purchase, and Splish estimates that 10 sets will be returned.

Explanation

The cost of recovering the products is deemed immaterial, and Splish believes the returned tool sets can be resold at a profit. On March 25, 2020 , Barr
returned 6 tool sets and received a credit.

Step: 2

Answer :

Journal entry :

No. Accounts Debit Credit

1 Cash 8500

Sales revenue 8500

(To record cash sales)

Cost of Goods sold 5440

Inventory 5440

(To record cost of goods sold)

2 Sales returns and allowances 300

Accounts payable 300

(To record sales returns)

Returned inventory 192

Cost of goods sold 192

(To record cost of goods sold returned)

3 Sales returns and allowances 200

Accounts payable 200

(Adjusting entry for sales returns)

Estimated inventory returns 128

Cost of Goods sold 128

(Adjusting entry for Cost of Goods sold)

Income Statement:

Sales revenue 8500

Less: sales returns and allowances 500

Net Sales 8000

Cost of goods sold (5,440-192-128) 5120

Gross Profit 2880

Balance Sheet:

Cash 8500

Returned Inventory 320

Accounts Payable 500

Explanation

. This scenario emphasizes the importance of accurate estimation, diligent monitoring, and appropriate accounting treatments to ensure the integrity of
financial reporting while navigating the nuances of customer returns within the realm of business operations.

Final Answer

In conclusion, the series of transactions between Splish Company and Barr Hardware exemplifies the complexity and intricacies involved in accounting for
sales with return provisions. The careful consideration of estimated returns, potential recovery costs, and the ability to resell returned items at a profit
underscores the need for accurate record-keeping and prudent financial management.

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