Question

Sale with Right of Return

Berger Company had sales in 2019 of $200,000. The goods sold cost Berger $125,000. The goods were sold with the right of return. By the end of 2019, goods having a total selling price of $10,000 had been returned. As of December 31, 2019, Berger expected returns of another $2,000 (based on selling price) of goods sold in 2019.

All Berger’s goods sell for the same percentage gross profit.

Required:

Prepare the journal entries Berger uses to record its 2019 activity.

Answer 1

	COGS %		$125000/$200000		0.625
1	Sales A/c			$200,000
	To Accounts Receivable				$200,000
	(Being Sales recorded)
2	Cost of Goods Sold A/c			$125,000
	To Inventory				$125,000
	(Being inventory reduced due to sales)
3	Sales Return and allowances A/c			$10,000
	To Accounts receivable				$10,000
	(Being goods returned)
4	Inventory A/c			$6,250
	To Cost of Goods Sold				$6,250
	(Being increase of inventory due to return of goods)
	$10000*0.625
5	Sales Return and allowances A/c			$2,000
	To Accounts receivable				$2,000
	(Being goods returned)
6	Inventory A/c			$1,250
	To Cost of Goods Sold				$1,250
	(Being increase of inventory due to return of goods)
	$2000*0.625