Question

Use the information of CDC Ltd. below for Questions #26 to #27.

On October 13, 2019, CDC Ltd. sold Gosh Co. products for $3,000 on credit and the products had cost CDC $1,200. The expected return rate is 12%. On November 8, 2019, Gosh returned products worth $400 to CDC and the returned products had a cost of $160 and are still in saleable condition.

26. What is the balance of Refund Liability as at October 13, 2019?

1. $216 on debit.
2. $216 on credit.
3. $360 on debit.
4. $360 on credit.
5. None of the above.

27.What is the balance of Estimated Inventory Returns as at November 8, 2019?

1. $16 on debit.
2. $16 on credit.
3. $256 on debit.
4. $256 on credit.
5. None of the above.

I would like to how to answer it. Please write down the process in detail.

Answer 1

26. Answer: $360 on credit

Expected sales returns = 12% x $3,000 = $360

The journal entry recorded on October 13, 2019 will debit the sales returns account and credit the refund liability account for $360.

Balance of Refund Liability as at October 13, 2019 = $360 credit

27. Answer: $16 on credit

Estimated inventory returns = 12% x $1,200 = $144

The journal entry recorded on October 13, 2019 will debit the estimated inventory returns and credit the cost of goods sold for $144.

On November 8, 2019, the inventory account will be debited and the estimated inventory returns will be credited for $160.

Balance of Estimated Inventory Returns as at November 8, 2019 = $144 - $160 = $16 credit