Question

Sunland Growth Company is testing a number of new agricultural seeds that it has recently harvested. To stimulate interest, it has decided to grant five of its largest customers the unconditional right to return these products if not fully satisfied. The right of return extends for four months. Sunland Growth sells these seeds on account for $1,550,000 (cost $600,000) on April 2, 2020. Customers are required to pay the full amount due by June 15, 2020. The company follows IFRS.

Prepare the journal entry for Sunland Growth at April 2, 2020, assuming Sunland Growth estimates returns of 20% based on prior experience. Sunland follows ASPE. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Date	Account Titles and Explanation	Debit	Credit
April 2, 2020
	(To record sale on account)
April 2, 2020
	(To accrue for sales returns)
April 2, 2020
	(To record cost of goods sold)

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List of Accounts

  

  

Assume that one customer returns the seeds on July 1, 2020.

Prepare the journal entry to record this transaction, assuming this customer purchased $120,000 of seeds from Sunland Growth. Sunland follows ASPE. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round answers to 0 decimal places, e.g. 5,275.)

Date	Account Titles and Explanation	Debit	Credit
July 1, 2020
	(To record return from customer)
July 1, 2020
	(To record return of inventory)

Answer 1

Solution

Date

Account titles and explanation

Debit

Credit

Apr 2, 2020 Accounts Receivable 15,50,000

Sales Revenue 15,50,000

(To record sales on account)

Apr 2,2020 Sales Revenue 120,000

Sale return & allowance 120,000

(To accrue for sale return)

Apr 2,2020 Cost of goods sold 600,000

Inventory 600,000

(To record cost of goods sold)

July 1,2020   Sales Returns & Allowances 120,000

  Accounts Receivable 120,000

  (To record sales returns)

July 1,2020   Returned Inventory 46,452

Cost of goods sold 46,452 (600,000/15,50,000 x 120,000)

( To record cost of goods returned)

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