Question

Carnegie Corp. commissions, produces, and sells books through faith-based nonprofit organizations. The books are sold on the basis that a maximum of 50% of the quantity purchased can be returned within six months. The contract with the customer outlines the amount of consideration and the return policy and that payment is due within 30 days of the end of the return period. Carnegie has a good historical record of the proportion of books returned, on average. On 1 June, Carnegie sold $25,000 worth of books. On 15 August, $4,000 were returned, and on 3 October, an additional $5,500 were returned. The payment for the balance owing was received on 20 December. The cost of the books is 65% of the selling price. All of the returns are put back into inventory and can be resold.

Required: Prepare the appropriate journal entries that are required for the described transactions. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Answer 1

Journal Entries
date	explanation	debit	credit
1-Jun	accounts receivables	25000
	sales revenue		25000
1-Jun	cost of goods sold	16250
	inventory		16250
15-Aug	sales return & allowance	4000
	accounts receivables		4000
15-Aug	inventory	2600
	cost of goods sold		2600
3-Oct	sales return & allowance	5500
	sales return & allowance		5500
3-Oct	cost of goods sold	3575
	inventory		3575
20-Dec	cash	15500
	accounts receivables		15500